If you have made a payment to a contractor or professional then you will have to deduct tax at source at the rate of 5 per cent if the aggregate payment exceeds Rs 50 lakh in a financial year, as per current income tax rules. The Central Board of Direct Taxes (CBDT) has now notified rules regarding the time limit to deposit TDS with the central government and the time limit for issuing the TDS certificate to contractors or professionals.
According to the notification issued by the CBDT on November 18, 2019, an individual is required to deposit the tax deducted within 30 days from the end of the month in which the deduction was made. The tax must be deposited along with a challan-cum-statement in Form 26QD.
Additionally, the individual will be required to issue the TDS certificate in Form 16D to the contractor or professional within 15 days from the due date of depositing tax. Here’s an example.
Suppose you have made a payment to a professional, say a lawyer, for Rs 60 lakh in the financial year 2019-20. The payment is made on October 20. The tax deducted by you must be deposited with the central government on or before November 30 and must issue the TDS certificate, i.e., Form 16D by December 15.
Abhishek Soni, CEO and founder, Tax2win.in, an ITR filing website, says, “As per the provisions of Section 194M, TDS is required to be deducted at the rate of 5 per cent if the payment is being made by the Individual / HUF for the carrying out any work or for execution of the contract or payment in the nature of commission / brokerage / professional fees. However, no TDS is required to be deducted if the aggregate amount of payment does not exceed Rs 50 lakh in the financial year. TDS needs to be deducted at the time of payment or credit in the book of accounts, whichever is earlier. A challan-cum-statement in Form 26QD has to be filed electronically by the deductor. The deductor will also have to issue the TDS certificate in Form 16D to the professional or contractor.”
With effect from September 1, 2019, it has become mandatory for an individual or Hindu Undivided Family (HUF) to deduct tax on payments made to a contractor, professional, or commission or brokerage paid, totalling more than Rs 50 lakh in a financial year.
In the same notification, CBDT has introduced the rules regarding section 194N of the Income Tax Act. According to section 194N, banks have to deduct tax if cash withdrawal from a bank account exceeds Rs 1 crore in a financial year.
Soni adds, “In case TDS is deducted as per the provisions of Section 194N, certificate of TDS, i.e., Form 16A will be issued by the deductor (bank) to the deductee (individual). As per the provisions of Section 194N, TDS at the rate of 2 per cent will be applicable in case cash is withdrawn in excess of Rs 1 crore during the financial year.”