TDS on Payments under Section 194M of the Income Tax Act, 1961

Introduction

Section 194M of the Income Tax Act was introduced to bring certain high-value payments made by individuals and Hindu Undivided Families (HUFs) under the TDS framework. It applies to individuals who make payments to resident contractors, professionals, or for commission. However, they are not required to deduct TDS under sections like 194C, 194H, or 194J. The provision was added to close a compliance gap and ensure tax deduction on large personal or non-audit transactions. Under the Income tax Act, 2025, the provisions corresponding to Section 194M of the Income tax Act, 1961 have been renumbered as Section 393(1), Table Sl. No. 6(ii).

In this blog, we will discuss TDS on payments made to resident contractors, professionals, and commission or brokerage recipients under Section 194M of the Income Tax Act, 1961.

TDS under Section 194M of the Income Tax Act

According to Section 194M of the Income Tax Act, if an individual or HUF uses contractual services or professional services and the total amount paid is more than Rs. 50 lakhs during the particular financial year, the payer has to deduct TDS at 2%. The purpose of adding this section was to make individuals and HUFs more accountable for their tax compliance and financial accounting.

TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.

Under the Income-tax Act, 2025, the provisions corresponding to Section 194M of the Income tax Act, 1961 have been renumbered as Section 393(1), Table Sl. No. 6(ii).

To understand the updated provisions and related TDS changes under the new law, read our detailed guide on Section 393(1) of Income Tax Act 2025: TDS on Rent Explained.

Payments Covered under Section 194M of the Income Tax Act

This section outlines the types of payments on which tax must be deducted under Section 194M. It covers specific payments made by individuals and Hindu Undivided Families (HUFs) when the prescribed conditions are met.

Contractual work – Payments made for carrying out any work under a contract are covered under Section 194M. This includes payments for construction, repair work, labour supply, catering, and similar contractual arrangements where a service or task is executed.
Professional services– Section 194M also applies to payments made for professional services such as legal, accountancy, architectural, engineering, consultancy, and interior decoration services. These services are generally provided by persons with specialised knowledge or professional qualifications.
Commission or brokerage – Payments made in the nature of commission or brokerage to a resident are covered under Section 194M, except insurance commission covered under other TDS provisions. This includes payments made to agents or intermediaries for services rendered, other than insurance commission.

All these payments fall under Section 194M only when the total amount paid to a single person exceeds ₹50 lakh in a financial year.

Who Is Required to Deduct TDS Under Section 194M?

This section explains which individuals and Hindu Undivided Families (HUFs) are required to deduct tax at source under Section 194M of the Income Tax Act. It mainly applies to cases where large payments are made, but regular TDS provisions do not apply.

Applicability to Individuals and HUFs

Section 194M applies when an individual or HUF makes payments exceeding ₹50 lakh in a financial year to a resident contractor, professional, or recipient of commission/brokerage. The threshold limit for Section 194M is ₹50 lakhs. If the total gross payments do not cross this threshold, then Section 194M is not applicable.

By prescribing a threshold limit, the section applies only to high-value payments and reduces compliance requirements for smaller transactions.

When TDS Deduction Becomes Mandatory?

TDS must be deducted when payment is made to a resident contractor, professional, or for commission or brokerage, and the total payment to one person exceeds ₹50 lakh in a financial year. This rule applies even if the payment is for personal purposes.

Cases Where Section 194M Does Not Apply

Section 194M is not applicable in the following cases:

• Payments made to non-residents: Section 194M applies only to payments made to resident contractors, professionals, or persons receiving commission or brokerage. Payments to non-residents are covered under other applicable provisions of the Income Tax Act.
• Payments not covered under specified categories: TDS under Section 194M is applicable only for contractual work, professional services, or commission/brokerage payments. Other types of payments are outside the scope of this section.
• Payments already covered under other TDS provisions: Payments where the payer is already liable to deduct TDS under Sections 194C, 194H, or 194J are outside the scope of Section 194M, as those specific provisions apply.

This version is legally safer and avoids mentioning exclusions that are not specifically provided under Section 194M.

Rate of TDS under Section 194M

When Can Tax Be Deducted at Source under Section 194M?

An individual or HUF shall deduct TDS on payments made to resident contractors or professionals under Section 194M either:

• At the time of credit of such amount; or
• At the time of payment by cash, cheque, draft, or any other mode,

whichever is earlier.

Get Expert Help for TDS Return Filing

TDS compliance under Section 194M of the Income Tax Act can be confusing for individuals and HUFs when payments cross the prescribed threshold limit. From checking the applicable TDS rate to filing the correct return, every step needs proper attention to avoid errors, interest, or late filing issues.

Ebizfiling can assist you with:

• TDS calculation based on the applicable rate and payment amount
• Challan payment guidance for timely TDS deposit
• Deductee details review, including PAN and payment information
• Form 26QD filing assistance for contractor, professional, commission, or brokerage payments

Need help with TDS return filing? Our experts are here to assist you with accurate and timely compliance.

Conclusion

The introduction of Section 194M of the Income Tax Act created a wider base to cover individuals and HUFs that were not subject to tax audit. The provision helps bring high-value payments made by individuals and HUFs within the TDS framework while maintaining a threshold limit for smaller transactions. For individuals and HUFs, it is crucial to know the applicability of Section 194M, the compliance requirements, and the penalties for non-compliance. Under the Income Tax Act, 2025, Section 194M has been renumbered as Section 393(1), Table Sl. No. 6(ii).

FAQs on Section 194M of the Income Tax Act