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Payment of certain sums by certain Individuals or HUFs – Section 194M
Finance Bill (No.2) 2019 has inserted a new Section 194M (effective from 01.09.19) which provides deduction of tax at source @ 5% in relation to payment for carrying any work (including supply of labour for carrying out any work) in pursuance of contract or by way of fees for professional services by any Individual or Hindu Undivided Family [HUF] (collectively or individually referred as ‘Payer’) to a resident in case the payment or payments in aggregate exceeds Rs. 50 Lakhs during the financial year.
Memorandum to Finance Bill (No.2) 2019 provides that the provisions of Section 194M is proposed to introduce to plough the loophole for possible tax evasion where in individual or HUF is carrying on business or profession which is not subjected to audit, since there is no obligation to deduct tax at source on such payment to a resident, even if the payment is for the purpose of business or profession[1].
Sec 194M would apply in case of individual or HUF who are not required to deduct tax under Section 194C or 194J as the case may be. In other words, the provisions of Section 194M would apply only in situations where the payer is not obliged to deduct tax in terms of Section 194C or Section 194J. Hence, it assumes importance to understand under what circumstances payer is obliged to deduct tax under Section 194C or Section 194J to determine the applicability of Section 194M.
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