Key Takeaways

Section 194M applies to individuals and HUFs making high-value payments, ensuring TDS compliance even when they are not regular TDS deductors.
TDS is required only when payments exceed ₹50,00,000 in a financial year, and it is deducted at 2% only on the excess amount.
Compliance under Section 194M is simple and fully online, with no TAN requirement, just PAN-based filing using Form 26QD and Form 16D.

Bonus Tip: Under Section 194M, individuals or HUFs not under tax audit must deduct 5% TDS on payments to residents for work, commission, brokerage, or professional fees, using Forms 26QD and 16D.

Making a big payment and wondering whether TDS applies to you? Section 194M answers that question clearly, and it ensures that large personal payments are taxed properly, even when the payer is not a business or professional.

Section 194M works like a security check at a toll gate; small vehicles pass freely, but heavy ones are stopped and recorded. Similarly, small payments go untouched, but once payments cross ₹50 lakh, TDS must be deducted. It keeps large transactions visible to the tax system.

Let’s say Amit, an individual not under tax audit, pays a consultant ₹55,00,000 in FY 2025–26. Since total payments exceed ₹50,00,000, TDS applies on the entire ₹55,00,000. He deducts 2% TDS of ₹1,10,000, not just on the excess amount.

What Is Section 194M Under Income Tax Act?

Section 194M is designed to make sure that large payments don’t escape the tax net.

If you’re an individual or HUF who normally doesn’t deduct TDS under sections like 194C, 194H, or 194J, this section still steps in when you make large payments. Whether you’re paying a contractor, a professional, or giving commission or brokerage to a resident, Section 194M ensures that tax is deducted before the money goes out.

It closes the gap, so high-value payments don’t slip past the tax net just because the payer isn’t running a business.

Section 194M TDS Applicability

Section 194M makes sure that big payments by individuals and HUFs don’t go untaxed, even if they are not regular TDS deductors.

What does Section 194M say?

If an individual or HUF (not liable to tax audit under Section 44AB) pays a resident contractor, professional, or commission/broker more than ₹50 lakh in a financial year, TDS must be deducted.

Key rules at a glance

Particulars	Details
Who deducts TDS	Individual or HUF (no tax audit)
Payment type	Contract work, professional fees, commission/brokerage (except insurance)
Threshold limit	₹50,00,000 in a financial year (per person)
TDS rate	2% (from 1 Oct 2024)
PAN not provided (If PAN is not provided, Section 206AA mandates 20% TDS to prevent untraceable payments, enforce tax compliance, and safeguard revenue when the recipient’s identity cannot be verified.)	20% TDS
TAN required	No
Form for payment	Form 26QD
TDS certificate	Form 16D

Let’s understand it with the help of an example

Rohit (an individual, not under tax audit) pays a consultant ₹55,00,000 in FY 2025–26.
TDS will apply on ₹5,00,000 (amount above ₹50,00,000).
TDS = 2% of ₹5,00,000 = ₹10,000.

Compliance made easy

Deduct TDS at the time of payment or credit, whichever is earlier
Deposit TDS within 30 days from the month-end using Form 26QD
Issue Form 16D within 15 days, downloadable from TRACES

Section 194M keeps high-value personal payments tax-compliant, without complicated procedures.

194M TDS Limit and Rates for FY 2025–26

For FY 2025–26, Section 194M comes into play when large personal payments are made by individuals or HUFs. Even if you’re not a regular TDS deductor, this section ensures that high-value payouts don’t go untaxed.

Section 194M: Key Rules at a Glance

Particulars	Details
Applicable to	Individual or HUF
Condition	Not liable to deduct TDS under Sections 194C, 194H, or 194J
Payee	Resident contractor or professional
Payments covered	Contract work, professional fees, commission/brokerage (excluding insurance commission)
Threshold limit	₹50 lakh per financial year (per payee)
TDS rate	2% on amounts exceeding ₹50,00,000
Higher rate	20% if PAN is not provided
TAN required	No
TDS deposit form	Form 26QD
TDS certificate	Form 16D

How the ₹50,00,000 limit works

If total payments to one person do not cross ₹50,00,000, no TDS is required.
The moment payments exceed ₹50,00,000, TDS applies only on the excess amount, not the full payment.

Let’s understand it with the help of an example

Suppose you pay a contractor ₹60 lakh for a home renovation in FY 2025–26.
TDS will apply on ₹10,00,000 (₹60,00,000 − ₹50,00,000).
TDS = 2% of ₹10,00,000 = ₹20,000.

Compliance made easy

Deduct TDS at the time of payment or credit, whichever is earlier
Deposit TDS within 30 days from the month-end using Form 26QD
Issue Form 16D to the payee

Section 194M keeps high-value personal payments tax-compliant, without the hassle of getting a TAN.

How to Pay TDS Under Section 194M?

Paying TDS under Section 194M is a fully online process and is much simpler than regular TDS compliance. Individuals and HUFs can complete everything using their PAN, without applying for a TAN, as long as they follow the steps in the right order.

Steps to Pay TDS under Section 194M

Deduct TDS: Deduct tax at the time of payment or credit, whichever is earlier, at 2% on the amount exceeding ₹50 lakh (or 20% if PAN is not provided).
Visit the e-Filing Portal: Go to the Income Tax Department’s e-filing website and log in using your PAN as the user ID.
Open e-Pay Tax: From the ‘e-File’ menu, select ‘e-Pay Tax’ to start a new payment.
Choose Form 26QD: Click ‘New Payment’ and select Form 26QD for TDS on contract, professional fees, or commission.
Enter Transaction Details: Fill in the deductor and deductee details carefully, including PAN, payment amount, and date.
Make the Payment: Pay online using net banking, debit card, RTGS/NEFT, or a payment gateway and save the CIN.
Issue Form 16D: Download and issue Form 16D to the payee within 15 days of the Form 26QD due date.

Section 194M makes TDS compliance simple, no TAN, no paperwork, just a clean online process done in minutes.

Conclusion

Section 194M ensures that large personal payments by individuals and HUFs are properly taxed, even when they are not regular TDS deductors. With a clear ₹50 lakh threshold, a lower 2% TDS rate, no TAN requirement, and a fully online process using Form 26QD and Form 16D, compliance is simple and practical. Awareness of these rules helps you stay tax-compliant, avoid penalties, and manage TDS smoothly without unnecessary hassle.

FAQs

Q: What is the new TDS section 194M of the Income Tax Act, 1961, about?

Section 194M requires individuals and HUFs to deduct TDS on high-value payments exceeding ₹50 lakh made to resident contractors, professionals, or commission agents, even if they are not regular TDS deductors.

Q: If we receive a bill with both material and labor charges, will TDS be applicable?

Yes, TDS under Section 194M applies to the total bill amount (including material and labor) once payments to the same person exceed ₹50,00,000 in a financial year, unless charges are clearly separated and only labor is taxable under TDS.

Q: Should I deduct TDS if my sole proprietorship is not yet liable for tax audit but pays professionals?

Yes. If you (as an individual/proprietor) are not liable for tax audit, Section 194M still applies. Once your total payments to professionals/contractors/commission agents exceed ₹50 lakh in a financial year, you must deduct 2% TDS on the entire amount paid/credited.

Q: Is 1% TDS avoidable on an under-construction property if the builder splits land and construction costs?

No. If the total consideration exceeds ₹50 lakh, 1% TDS under Section 194-IA applies on the full amount; splitting land and construction or paying 0.1% TCS is a red flag and not legally valid.

Q: When does Section 194M require me to deduct TDS, and how do I comply?

If you’re an individual or HUF paying a resident contractor, professional, or agent more than ₹50 lakh in a financial year, you must deduct 2% TDS on the excess amount and pay it online using Form 26QD; no TAN required.