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Tax Withholding obligations under Income Tax Act, 1961 – “Non-Business” Payer

Are you constructing a house? Are you undertaking interior work? Are you hosting a social event such as a marriage function in family? If yes, this article may be relevant for you.

In my post of July 15, 2022, I had shared an overview of tax withholding obligations of a purchaser of immovable property in India under the Income Tax Act, 1961 “(ITAct”).

https://www.linkedin.com/posts/activity-6953981260679495680-pY_v?utm_source=share&utm_medium=member_desktop

This one is to highlight a few withholding obligations under the ITAct of an Individual or Hindu Undivided Family (“HUF”) making payment to any Resident (under ITAct) in India even when such individual or HUF making payment is not engaged in any business or profession.

Read on my views for a summary overview of obligations under 2 sections of ITAct (Salary related is not covered and will be taken up separately).

A. Payment for Work, Commission/Brokerage, Professional Services u/s 194M

• Applicability – Individual or HUF required to make payment (“Payer”)

Payer Activity	Applicability condition, if any
Not carrying on business or profession / sum paid for Personal purpose	Applicable
Carrying on business or profession	Total Sales, Gross Receipts or Turnover upto Rs 1 crore (Rs 10 million) in case of business or upto Rs 50 lakh (Rs 5 million) in case of profession in the financial year immediately preceding the financial year in which such sum is credited or paid

• Nature of payments covered

1. 1. “Work” (including supply of labour): The term is very wide and includes
      1. Advertising
      2. Carriage of goods or passengers by any mode other than railways
      3. Catering
      4. Manufacturing/supplying a product by using material purchased from the customer or its associate
      5. Construction
   2. “Commission/Brokerage”: Wide coverage which includes services
      1. for acting on behalf of another
      2. in course of buying or selling of goods
      3. in relation to any transaction relating to any asset, valuable article or thing
   3. “Professional Services” means services of legal, medical, engineering, architect, accountancy, technical consultancy, interior decoration, advertising, authorised representative, film artist, company secretary, information technology. Film artist means producer, director (includes art, music & dance), actor, cameraman, editor, singer, lyricist, writer (story, screen play & dialogue), dress designer and Sports related (Sports persons, umpires & referees, coaches & trainers, team physicians & physiotherapists, event managers, commentators, anchors and sports columnists).

• Exclusion payment nature wise

1. 1. “Work”: The below are not considered as “Work”:
      1. Purchase of goods
      2. Manufacturing/supplying a product though according to the requirement/specification given but by using material purchased from other than buyer or its associate
   2. “Commission/Brokerage”
      1. Professional services (covered separately)
      2. Transaction relating to securities (as defined under Securities Contracts (Regulation) Act, 1956)
   3. “Professional Services” rendered by
      1. Employee
      2. Authorised Representative not representing before any Tribunal or authority constituted or appointed by or under any law

• Threshold Amount
  If sum, credited or paid, exceeds Rs 50 lakh (Rs 5 million) in a financial year, then tax is required to be deducted at source by Payer.

 

• Tax Deduction Rate
  Tax is required to be deducted @5% of the sum credited or paid, at earlier of crediting such sum or at the time of payment

 

A few notes to attention:

• This provision applies even if the Payer is a non-resident under ITAct.
• For threshold, aggregate of sums credited or paid in financial year is to be considered
• Tax Deduction Account Number is not required to be obtained by individual or HUF
• Lower tax withholding certificate can be obtained

 

B. Payment of Rent u/s 194-IB

• For any income by way of Rent (payment under lease, sub-lease, tenancy or any other agreement or arrangement) to a Payee; of
• Rent exceeding Rs 50,000 for a month or part of month during the previous year; and
• With responsibility to pay (“Payer”) with an Individual or HUF other than

1. 1. Individual or HUF carrying on business or profession; and
   2. having Total Sales, Gross Receipts or Turnover exceeding Rs 1 crore (Rs 10 million) in case of business or exceeding Rs 50 lakh (Rs 5 million) in case of profession in the financial year immediately preceding the financial year in which such income of rent is credited or paid; Then

• Tax is required to be deducted by Payer, individual or HUF, @5% of such income
• At time of crediting rent for last month of previous year or last month of tenancy, as case may be, to account of the Payee or at the time of payment, whichever is earlier

 

A few notes to attention:

• This provision applies even if the Payer is a non-resident under ITAct
• Lower tax withholding certificate cannot be obtained from tax authorities
• Tax Deduction Account Number is not required to be obtained by individual or HUF

Higher rate would be applicable in absence of PAN of the Payee. However, the deduction shall not exceed the rent payable for the last month of previous year or last month of tenancy, as case may be

 

Your Thoughts, Comments, Observations, Inputs are deeply appreciated.

Rajesh Lal
Chartered Accountant
☎: +91-9971033977
✉: rajeshlal@rajeshlalandco.com
LinkedIn: https://in.linkedin.com/in/rajesh-lal