TDS on Payments to Resident Contractors & Professionals Step wise Process to file online Form 26QD Section 194M

The Finance Act, 2019 has introduced a new section 194M. As per this provision if the individual is making payment to contractors and professionals exceeding Rs. 50 Lakhs than he is required to deduct TDS at the rate of 5% from the sum payable to a resident deductee/ payee. This provision is applicable to Individual and HUF who are not liable to tax audit. As per the announcement made by Finance Minister from 14^th May 2020 for FY 2020-21 the individual is liable for deducting TDS at the rate of 3.75%.

Under the existing provision of TDS i.e. Section 194J (TDS on Technical and Professional service) and Section 194C (TDS on Contractors) individuals or HUFs not covered under audit were not liable to deduct TDS irrespective of the amount of payment. This was the main reason for the introduction of section 194M, to cover the non-audit individuals under the TDS purview.

The following are the conditions for deducting TDS on payment to resident contractors and professionals above Rs. 50,00,000:

1. It is applicable to all individual or HUF who is making payment to resident contractors and professionals above Rs. 50,00,000
2. As per section 194M individual or HUF who is required to get his books of accounts audited under section 44AD are not required to deduct tax under section 194M, they are covered under section 194J (TDS on Technical and Professional service) and Section 194C (TDS on Contractors)
3. The payee has to deduct TDS at the rate of 5% on the amount paid, in case no PAN is served by the recipient then TDS is deductible at the rate of 20% subject at maximum limit of rent payable for the month of march or the last month of tenancy as the case may be. As per the announcement made by Finance Minister from 14^th May 2020 for FY 2020-21 the individual is liable for deducting TDS at the rate of 3.75%.
4. TDS is needed to be deducted only at earlier of the following dates:
   • At the time of credit of the amount, or
   • At the time of payment by cash or by the issue of cheque or draft
5. No TAN is required for such person to deduct and deposit TDS to Government
6. The payment is to be made by the individual by using form 26QD which is a challan cum statement:
   • If the contract or work is not completed at the end of the Financial year then file Form 26QD within 30 days from the end of the Financial Year
   • If the contract or work is in between the Financial year then file Form 26QD within 30 days from the end of the month when the Contract/ services is completed or terminated.
7. If the person makes payment of Rs. 50,00,000 to more than one resident contractor or professionals then form 26QD is to be made twice in a year for each contractor or professionals, in other words the tenant needs to file form 26QB for each contractor or professionals.
8. In case the form is to be filed more than once then the payment is also need to be made more than one time as for each contractor or professionals for their respective fees a separate payment is to be made
9. If payment is made to non-resident, then TDS is deductible under section 195.
10. The person deducting the TDS must provide the TDS certificate in Form 16B to the resident contractor or professionals.

Procedure for filing Form 26QD:

Individual making payment of more than Rs. 50,00,000 to resident contractors or professionals is required to deduct TDS at the rate of 5% and deposit such TDS through form 26QD. Following are the steps to file Form 26QD- TDS on payment to contractors or professionals of more than Rs. 50,00,000

Step 1: Go to https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp  

Click on “Proceed” button of ” TDS on Rent of property (Form 26QD)”

Step 2: Filing of Form

Fill the complete form as applicable below:

1. Tax Payer Info: Enter the details of both deductor or deductee:

• Select Status of the deductee i.e. whether he is resident or Non- resident
• Select whether PAN of deductee is available or not
• Enter PAN no of the Deductor, confirm the PAN of the Deductor by entering once again
• Enter PAN no of the deductee confirm the PAN of the deductee by entering once again

Now click on “Next” button

2. Enter Address of Both deductee and deductor:

• Enter complete Communication address, mail id and mobile no of Deductor.
• Enter complete address, mail id and mobile no of Deductee.

3. Enter Contract details: Now enter the details of the Contract:

Now enter the details of contract which include:

• Nature of payment i.e. contract, Commission or brokerage or fees for professional services
• Enter Aggregate of payment/credit during the period from 1st April to the end of the month in which the payment has been made /credited*
• Select, if it is a case of non-deduction /Lower deduction on account of certificate under section 197, if yes enter the Number of the certificate under section 197 issued by the Assessing officer for non-deduction or lower deduction
• Enter the date of Contract
• Enter the total value of Contract
• Enter the amount paid or credited
• TDS on amount details

After above details are entered click on “Next” button

4. Payment Info:

Enter the payment information as below:

1. The mode of payment i.e. payment of tax online or payment of tax through bank visit. In case of payment of tax online the person can pay tax online and in case of payment of tax through bank visit the person has to take hard copy of Form 26QD to the bank and pay through cheque
2. Enter the of Date of Payment or Credit of payment to the Contractor
3. Enter the Date of Tax deduction
4. Enter the captcha code and click on “Proceed” button

After above step Form 26QD gets generated.

In case payment of tax online it will redirect you to the bank portal, now enter the net banking login Id password and make payment. On successful payment a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment​ being made.

In case payment of tax through Bank visit it will redirect you to download “Form 26QD”, download the form and take print outs.