Applicability of Section 194M

[Ethirajan Parthasarathy]

A salaried person enters into contract for construction of his residence. The contract amount is Rs.1,10,00,000/-

The contractor gives running bills. During Account year 2022 – 23, he has given bills aggregating to 40,00,000/- lakhs and during 2023 -24 he has given bills aggregating to 70,00,000/- lakhs. Payments are made immediately.

In my opnion, no tax needs to be deducted during 2022 -23 since the amounts “Paid” during the year is below 50,00,000/- lakhs and TDS u/s 194M is to be done only on whole of 70,00,000/- lakhs “paid” during 2023 -24.

Is my view correct since u/s 194M lays emphasis on “amount paid” and not the contract amount. (Q 1)

While reporting TDS in Form No.26QD, we have to mention the total value of contract, which is Rs. 1,10,00,000/- in the given case while TDS is done only on 70,00,000/- lakhs. This may tigger some notice from department for short deduction.

Section 194M provides for TDS to be done at the time of credit or payment whichever is earlier. Section 194M covers only non business entities.

In the light of above, it is not clear how and when TDS can be demanded on the basis of “Provision” (Q2)

In a situation where the contractor gives bill for certain amount, say on 25 March 2023 but payment is made only on 4 April 2023 is TDS to be done and reported for AY 2023 -24 or 2024 -25. (Q3)

[DR.MARIAPPAN GOVINDARAJAN]

In my view your

Q1 is correct since Section 194M lays emphasis on amount paid.

Q2. Even notice received in this case you may explain the same.

Q3. You may make provision in 2023-24 and made TDS and payment the amount in 2024 - 25.

AI Summary

TDS on contractor payments applies to amounts paid, not contract value; deduct when payment (or credit) occurs. Withholding under Section 194M applies to amounts actually paid by a non-business payer in the relevant year, not to the total contract value; Form 26QD requires disclosure of contract value but TDS is computed on payments made, and where bills are raised in one year but paid in the next, deduction and deposit must be made in the payment year (though an accounting provision may be created in the earlier year).