Section 194M: 2% TDS When Individuals Pay Over Rs 50 Lakh

Most people think TDS is only a company or shopkeeper headache. Section 194M of the Income-tax Act, 1961 changed that in 2019. A salaried person renovating a flat, or a family paying a big lawyer or designer fee, can now be a tax deductor too. This guide walks you through whether the rule catches you, and exactly what to do if it does.

Run these three checks in order. You deduct TDS under Section 194M only if all three are YES.

1. Are you an individual or HUF who is NOT required to deduct under Section 194C, 194H or 194J? If your business or profession was under tax audit in the previous year, you already deduct under those sections, so 194M does not apply to you. 194M is built for ordinary individuals and HUF with no separate TDS duty.
2. Did your total payment to ONE payee cross Rs 50,00,000 in the financial year? Add up every payment to that single person across the year. The limit is per payee, per year, not per bill. Rs 50 lakh exactly is fine; you act only when it is exceeded.
3. Is the payment for work under a contract, for commission or brokerage, or for professional services? Think interior contractor, event manager, broker (not insurance commission), architect, doctor, lawyer or chartered accountant. The payee must be a resident.

If all three are YES, you are a deductor under Section 194M. If any one is NO, the section does not bite.

Section 194M is a TDS provision inserted by the Finance (No. 2) Act, 2019, effective 1 September 2019. It pulls high-value personal payments into the tax net by making non-audited individuals and HUF deduct tax when their yearly payment to one contractor, agent or professional crosses Rs 50 lakh.

1. Deduct the tax. Compute 2 percent of the full amount (not just the excess over Rs 50 lakh). Deduct at the time of credit or payment, whichever is earlier. If the payee has no PAN, you must deduct at 20 percent under Section 206AA.
2. Deposit via Form 26QD. Form 26QD is a challan-cum-statement. File and pay it online within 30 days from the end of the month in which you deducted. You log in with your PAN; no TAN is required.
3. Issue Form 16D. Download and give the payee a Form 16D certificate within 15 days from the due date of filing Form 26QD. This is their proof of the TDS, which they claim back in their own return.

Meera, a salaried professional in Pune, renovates her flat in FY 2025-26. She pays interior contractor Rajesh a total of Rs 60,00,000 across the year in instalments. Meera has no business and was never under tax audit, so she is squarely inside Section 194M.

On the instalment that takes Rajesh past Rs 50 lakh, she must deduct on the full Rs 60 lakh paid. TDS at 2 percent is Rs 1,20,000. She pays Rajesh Rs 58,80,000, deposits Rs 1,20,000 through Form 26QD within 30 days of that month-end, and hands Rajesh a Form 16D. Rajesh claims the Rs 1,20,000 as credit when he files his income tax return. Had Rajesh not shared his PAN, Meera would have had to deduct 20 percent, that is Rs 12,00,000.

194M is the catch-all for individuals who are NOT covered by the business TDS sections. This table shows the split.

The key idea: if 194C, 194H or 194J already applies to you, you do not also use 194M. 194M exists only to cover the gap left by those sections.

• Splitting bills to dodge the limit. The Rs 50 lakh test is on the aggregate to one payee for the whole year, so multiple invoices do not help.
• Deducting only on the excess. You deduct 2 percent on the entire amount paid, not just the slice above Rs 50 lakh.
• Using the old 5 percent rate. For deductions on or after 1 October 2024 the rate is 2 percent. Using 5 percent over-deducts.
• Trying to get a TAN. Section 194M deliberately needs no TAN. Use your PAN on the TIN portal.
• Missing the Form 16D step. Depositing tax is only half the job; the payee needs Form 16D to claim credit.
• Forgetting the no-PAN rule. Without the payee's PAN, the rate jumps to 20 percent under Section 206AA.

It is 2 percent for deductions made on or after 1 October 2024. The original rate when the section started in 2019 was 5 percent, so older guides still quote 5 percent. Always apply the rate in force on your deduction date.

No. This is the main relief in Section 194M. You deduct, deposit and report using your own PAN. There is no need to apply for a Tax Deduction and Collection Account Number.

The aggregate of payments to a single resident payee in one financial year must exceed Rs 50,00,000. If you pay several people, each is tested separately against the Rs 50 lakh limit.

Three types: amounts for carrying out any work under a contract, commission or brokerage (other than insurance commission), and fees for professional services. The payee must be a resident of India.

You deposit it using Form 26QD, a challan-cum-statement, within 30 days from the end of the month in which you deducted the tax. The portal accepts your PAN, so no TAN login is needed.

Form 16D is the TDS certificate you issue to the payee within 15 days from the due date of filing Form 26QD. It lets the payee claim the deducted tax as credit in their return.

Under Section 206AA, if a valid PAN is not provided, you must deduct at 20 percent instead of 2 percent. So always collect the payee's PAN before paying.

No. Salary has its own Section 192, rent paid by individuals above Rs 50,000 a month falls under Section 194-IB, and buying property is covered by Section 194-IA. Section 194M is only for contract work, commission and professional fees.

• Section 194M, Income-tax Act, 1961, inserted by the Finance (No. 2) Act, 2019, effective 1 September 2019 incometaxindia.gov.in
• Rate reduced from 5 percent to 2 percent with effect from 1 October 2024
• Section 206AA, Income-tax Act, 1961 (20 percent where PAN is not furnished)
• Form 26QD and Form 16D rules under Rule 30, 31 and 31A, Income-tax Rules, 1962

• Form 26QB: TDS on property purchase under Section 194-IA
• TDS on rent under Section 194-IB and Form 26QC
• The RTI Act, 2005
• AI RTI Drafter tool
• The RTI Playbook

This guide is reviewed for accuracy by Dr. Shrawan Kumar Pathak. It is general information, not a substitute for advice from a qualified chartered accountant on your specific facts.