The Finance Bill 2024 has introduced a crucial amendment to Section 194M of the Income-tax Act, impacting the TDS obligations of individuals and Hindu Undivided Families (HUFs) not liable under other specified sections. This update, effective from October 1, 2024, reduces the TDS rate from 5% to 2% on certain payments, aiming to ease the tax burden and streamline compliance.
Current Provisions of Section 194M
Under Section 194M, any individual or HUF (excluding those required to deduct TDS under Section 194C, Section 194H, or Section 194J) must deduct 5% TDS on payments made to residents for:
- Work, including the supply of labor for any contract.
- Commission (excluding insurance commission under Section 194D).
- Brokerage.
- Fees for professional services.
This deduction applies at the time of crediting the amount or when the payment is made, whichever occurs first.
Key Amendment Highlights
The Finance Bill 2024 proposes reducing the TDS rate under Section 194M from 5% to 2%, effective October 1, 2024. This change is designed to lighten the tax load for individuals and HUFs and align TDS practices with current financial conditions. The amendment affects all payments falling under the scope of Section 194M made on or after this date.
Threshold for TDS Deduction
The amendment does not alter the existing threshold for TDS under Section 194M, which remains at Rs. 50,00,000. This means that TDS must be deducted only if the total payments exceed this threshold within a financial year.
Illustrative Example
Consider Ashu, who hired a contractor for a renovation project, with total payments amounting to Rs. 60,00,000 during the financial year 2024-25. Before October 1, 2024, Ashu would be required to deduct 5% TDS, amounting to Rs. 3,00,000.
Calculation:
- TDS before October 1, 2024: 5% of Rs. 60,00,000 = Rs. 3,00,000
- TDS after October 1, 2024: 2% of Rs. 60,00,000 = Rs. 1,20,000
Post-amendment, Ashu will need to deduct 2% TDS on payments made from October 1, 2024, reducing his tax liability from Rs. 3,00,000 to Rs. 1,20,000.
Compliance Procedure
To ensure compliance with the new provisions:
Determine Applicability: Verify if the payments exceed the threshold of Rs. 50,00,000.
Timing of Deduction: Deduct 2% TDS on payments made on or after October 1, 2024, at the time of crediting or payment, whichever is earlier.
Payment and Filing: Deposit the deducted TDS with the government by the specified due date and file the necessary TDS return.
Conclusion
The reduction of TDS from 5% to 2% under Section 194M, effective from October 1, 2024, marks a significant shift aimed at reducing the tax burden and simplifying compliance for individuals and HUFs. This update is crucial for managing tax obligations effectively and avoiding unnecessary complications.
