Section 194M – Payment by Individual/HUF to Contractor/Professional

Section 194M of the Income Tax Act mandates Tax Deducted at Source (TDS) on certain payments made by an Individual or a Hindu Undivided Family (HUF) to resident contractors, professionals, or for commission/brokerage. This section was introduced to bring high-value personal transactions into the TDS net, particularly for individuals and HUFs who are not required to conduct a tax audit under Section 44AB and thus were previously outside the ambit of Sections 194C, 194H, or 194J.

Any person, being an **Individual or a Hindu Undivided Family (HUF)**, is responsible for deducting TDS under Section 194M if they are making payments covered by this section, and they are **not required to deduct TDS under Section 194C (payments to contractors), Section 194H (commission or brokerage), or Section 194J (professional fees)**. This essentially targets those individuals and HUFs whose total sales, gross receipts, or turnover from business or profession do not exceed the limits prescribed for a tax audit.

Section 194M applies to the following types of payments made to a resident:

• Payment for carrying out any **work** (including supply of labour for carrying out any work) in pursuance of a contract. The term 'work' has the same meaning as in Section 194C (e.g., construction, manufacturing, advertising, broadcasting, catering, transportation of goods/passengers).
• Payment by way of **commission or brokerage**. The term 'commission or brokerage' has the same meaning as in Section 194H (excluding insurance commission).
• Payment by way of fees for **professional services**. The term 'professional services' has the same meaning as in Section 194J (e.g., legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration).

These payments can be for personal use (e.g., home renovation, wedding planning) or business/professional use (if the individual/HUF is not subject to tax audit).

TDS under Section 194M is applicable only if the **total sum paid or credited** to a single resident payee for all covered services (contract work, commission/brokerage, or professional fees) **exceeds ₹50,00,000 (Fifty Lakhs Rupees) in a financial year**. If the aggregate payments do not cross this threshold, no TDS is required under this section.

The TDS rates under Section 194M are as follows:

• **2%** of the sum paid or credited, if the payee furnishes their PAN. (Applicable for payments made on or after October 1, 2024).
• **20%** if the payee does not furnish their Permanent Account Number (PAN).

Prior to October 1, 2024, the rate was 5%. The TDS is deducted on the **entire amount** exceeding the ₹50 lakh threshold, not just the amount above the threshold.

TDS is to be deducted at the time of **credit of such sum to the account of the payee** or at the time of **payment of such sum in cash, by cheque, draft, or by any other mode**, whichever is earlier.

No, a person deducting TDS under Section 194M **is not required to obtain a TAN**. You can use your Permanent Account Number (PAN) to deduct and deposit the TDS.

The TDS deducted under Section 194M must be deposited to the credit of the Central Government using **Form 26QD**, which is a challan-cum-statement. This form can be filed electronically on the e-filing portal of the Income Tax Department.

The TDS must be deposited and Form 26QD filed within **30 days from the end of the month in which the tax was deducted**. For example, if TDS was deducted in July 2025, the due date for deposit and filing Form 26QD would be August 30, 2025.

After deducting and depositing the TDS, the deductor (Individual/HUF) is required to issue a **TDS certificate in Form 16D** to the payee (contractor/professional). This certificate should be issued within **15 days from the due date of furnishing Form 26QD**.

Yes, the payee (contractor/professional) can claim credit for the TDS deducted under Section 194M when filing their Income Tax Return. The TDS credit will reflect in their Form 26AS (Annual Tax Statement), which can be accessed from the Income Tax Department's portal.

Failure to deduct TDS, or delay in deducting/depositing TDS under Section 194M, can lead to various penalties, including:

• **Interest** for delayed deduction (1% per month or part thereof) and delayed deposit (1.5% per month or part thereof).
• **Penalty** for non-deduction or non-payment of TDS.
• **Disallowance of expenditure** (if applicable) in the hands of the deductor, if the payment is related to business or profession.

No, Section 194M does not apply to payments for the purchase of immovable property. TDS on the purchase of immovable property (other than agricultural land) exceeding ₹50 lakhs is covered under a separate section, **Section 194-IA** (for residents) or Section 194-IB (for rent payment by individuals/HUFs), and is deposited using Form 26QB.