What is the New Form 26QD and Form 16D under Income Tax Act?

The Union Budget, 2019 has introduced 2 new sections for TDS Section 194M & 194N. These sections have been introduced with a view to discourage cash payment and encourage digital payment. before understanding Form 26QD and Form 16D we are required to understand Section 194M and 194N. Let’s understand these two in simple language:-

What is the new Section 194M?

  • In existing TDS Law for Individual/HUF who are required to get their books of account audited under section 44AB of Income Tax Act then they will deduct TDS under section 194C & 194J for making similar nature of the payment.
  • Now government purview Individual & HUF who are NOT required to get their books of account audited under section 44AB of Income Tax Act, 1961. (Means total sales/ turnover does not exceed Rs. 1 crore.)
  • These transactions are out of the purview of TDS leading to tax evasion.
  • For that Section 194M is Introduce for any payment made to Resident Individual for carrying out any contractual work or providing any professional service and the total amount involved is more than Rs.50,00,000/- in a financial year. 
  • For section 194M not required to get a Tax Deduction Account Number (TAN) for a tax deduction. You can deduct tax by quoting their Permanent Account Number (PAN) to the Government.
  • Important Point this section also applies if the payment is made for personal purposes.
  • Thus, the Government had reduced the scope of tax evasion as a major amount of payment made for contractual work & professional service was escaping the levy of TDS.
  • The rate of tax deduction at source under this section is 5%.
  • TDS amount will be deducted at the time of payment of the amount or at the time of credit in books whichever is earlier.

What is the new section 194N?

  • Generally, tax is deducted at source when it is earned by the recipient but surprisingly under Section 194N, the tax shall be deducted at source on Cash Withdrawals.
  • This section is applicable only to the Bank, Cooperative Bank, or a Post Office.
  • It is applicable in case of cash withdrawals of more than 1 crore in a financial year.
  • The limit of Rs 1 crore in a financial year is with respect to per bank account or post office account and not a taxpayer’s individual account.
  • The payer will have to deduct TDS from the amount, once the total sum withdrawn exceeds Rs 1 crore in a financial year. Further, the TDS will be done on the amount exceeding Rs 1 crore.
  • For example, if a person withdraws Rs 98 lakh in the aggregate in the financial year and in the next withdrawal, an amount of Rs 2,50,000/- is withdrawn, the TDS liability is only on the excess amount of Rs 50,000/-.
  • The rate of TDS under this section is 2% on the cash payments/withdrawals of more than Rs 1 crore in a financial year. Thus, in the above example, TDS would be on Rs. 50,000 at 2% i.e. Rs. 1,000.

After understanding the above section Now we are understanding “What is the New Form 26QD and Form 16D?”

Form 26QD:-

Form 26QD is the challan-cum-statement. when any sum deducted under section 194M shall be paid to the government within 30 days through the Form 26QD.

So, Form 26QD is the challan-cum-statement for reporting the transactions liable to TDS under section 194M of the Income-tax Act, 1961. It is an online form available on the TIN website.

The due date of payment of TDS under section 194M ‘PAYMENTS TO RESIDENT CONTRACTORS AND PROFESSIONALS’ is within a period of 30 days from the end of the month in which the payment has been made. for example:- If Date of Payment is 1st June 2020, then the due date for filing Form 26QD will be the end of June plus 30 days i.e, 30th July, 2019.

Form 16D:-

Form 16D is the TDS certificate to be issued by the deductor to the deductee within 15 days from the due date of Filling Form 26QD in respect of the tax deducted and deposited as TDS under section 194M of the Income-tax Act, 1961. Form 16D will be available for download from the website of (CPC-TDS).

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