My client is an individual paying a contractor and also paying rent. He has no TAN. What does he deduct, and at what rate?
Two per cent under either section, for anything on or after 1 October 2024; five per cent before that. Section 194M applies to an individual or HUF not already covered by s.194C, s.194H or s.194J who pays a resident more than fifty lakh rupees in a financial year for contract work, commission or brokerage or professional fees. Section 194-IB applies to an individual or HUF outside the second proviso to s.194-I who pays a resident rent exceeding fifty thousand rupees for a month or part of a month. Neither section requires a TAN, because s.203A is disapplied in both.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-10-01, reported as Income-tax Act 1961, ss.194M and 194-IB; s.194M inserted by Act No. 23 of 2019 w.e.f. 1 September 2019 and s.194-IB inserted by Act No. 7 of 2017 w.e.f. 1 June 2017; rate in each substituted for 'five' by Act No. 15 of 2024 w.e.f. 1 October 2024. It bears on section 194M, section 194-IB, section 203A, section 194C, section 194H, section 194J, section 194-I, section 206AA of the Income Tax Act 1961, in TDS Defaults, House Property and How Tax Law Is Read matters.
These are the two provisions that catch people who have never had a TDS obligation in their lives — a homeowner paying a builder, a professional's family paying rent — and this library has carried nothing on either. Three points do the work. The rate was cut from five per cent to two per cent by Act No. 15 of 2024, the Finance (No. 2) Act 2024, with effect from 1 October 2024, so any note written before that is wrong for a current payment. Neither section needs a TAN, so the deduction is reported on a challan-cum-statement rather than through a quarterly return. And in s.194-IB the whole year's tax is deducted once, from the last month's rent, which is why sub-section (4) caps the deduction at that month's rent where s.206AA applies.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 194M, inserted by Act No. 23 of 2019 with effect from 1 September 2019, requires any person being an individual or Hindu undivided family, other than those who are required to deduct as per s.194C, s.194H or s.194J, who is responsible for paying any sum to any resident for carrying out any work including supply of labour in pursuance of a contract, by way of commission not being insurance commission referred to in s.194D or brokerage, or by way of fees for professional services during the financial year, to deduct at the time of credit or payment, whichever is earlier. The proviso excludes deduction where the sum, or the aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees. Sub-section (2) disapplies s.203A. The Explanation borrows the meanings of 'contract', 'commission or brokerage', 'professional services' and 'work' from the Explanations to ss.194C, 194H and 194J. Section 194-IB, inserted by Act No. 7 of 2017 with effect from 1 June 2017, requires an individual or Hindu undivided family, other than those referred to in the second proviso to s.194-I, responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, to deduct; sub-section (2) fixes the time of deduction at the credit of rent for the last month of the previous year, or the last month of the tenancy if the property is vacated during the year, or payment, whichever is earlier; sub-section (3) disapplies s.203A; and sub-section (4) provides that where tax is required to be deducted under s.206AA the deduction shall not exceed the amount of rent payable for that last month. The Explanation defines rent as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both. The rate in each section was five per cent as enacted and was substituted by two per cent by Act No. 15 of 2024 with effect from 1 October 2024.
Not applicable — statutory provisions. The operative position is that from 1 October 2024 the rate under both s.194M and s.194-IB is two per cent, and for any earlier period it is five per cent. The thresholds are unchanged: fifty lakh rupees in aggregate in a financial year to one resident under s.194M, and fifty thousand rupees for a month or part of a month under s.194-IB. Neither section requires the deductor to obtain a tax deduction account number.
Not applicable — statutory provisions, and no decision on either section has been found. What follows is this library's reading of the statutory words. The rate change is established by the footnote 'Sub. for "five" by Act No. 15 of 2024, w.e.f. 1-10-2024' printed against the rate in both sections, and by comparing the current text with the earlier ones, which print 'five per cent' and carry no such footnote. Act No. 15 of 2024 is the Finance (No. 2) Act 2024.
deduct an amount equal to two per cent of such sum as income-tax thereon
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Handle my notice → Ask a CA on WhatsAppTwo per cent under either section, for anything on or after 1 October 2024; five per cent before that. Section 194M applies to an individual or HUF not already covered by s.194C, s.194H or s.194J who pays a resident more than fifty lakh rupees in a financial year for contract work, commission or brokerage or professional fees. Section 194-IB applies to an individual or HUF outside the second proviso to s.194-I who pays a resident rent exceeding fifty thousand rupees for a month or part of a month. Neither section requires a TAN, because s.203A is disapplied in both. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194M, section 194-IB, section 203A, section 194C, section 194H, section 194J, section 194-I, section 206AA of the Income Tax Act 1961. It is reported as Income-tax Act 1961, ss.194M and 194-IB; s.194M inserted by Act No. 23 of 2019 w.e.f. 1 September 2019 and s.194-IB inserted by Act No. 7 of 2017 w.e.f. 1 June 2017; rate in each substituted for 'five' by Act No. 15 of 2024 w.e.f. 1 October 2024. These are the two provisions that catch people who have never had a TDS obligation in their lives — a homeowner paying a builder, a professional's family paying rent — and this library has carried nothing on either. Three points do the work. The rate was cut from five per cent to two per cent by Act No. 15 of 2024, the Finance (No. 2) Act 2024, with effect from 1 October 2024, so any note written before that is wrong for a current payment. Neither section needs a TAN, so the deduction is reported on a challan-cum-statement rather than through a quarterly return. And in s.194-IB the whole year's tax is deducted once, from the last month's rent, which is why sub-section (4) caps the deduction at that month's rent where s.206AA applies. If it applies to you, the first step is this: Date the payment first. Two per cent from 1 October 2024; five per cent for anything earlier. The threshold did not change.
Section 194M, inserted by Act No. 23 of 2019 with effect from 1 September 2019, requires any person being an individual or Hindu undivided family, other than those who are required to deduct as per s.194C, s.194H or s.194J, who is responsible for paying any sum to any resident for carrying out any work including supply of labour in pursuance of a contract, by way of commission not being insurance commission referred to in s.194D or brokerage, or by way of fees for professional services during the financial year, to deduct at the time of credit or payment, whichever is earlier. The proviso excludes deduction where the sum, or the aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees. Sub-section (2) disapplies s.203A. The Explanation borrows the meanings of 'contract', 'commission or brokerage', 'professional services' and 'work' from the Explanations to ss.194C, 194H and 194J. Section 194-IB, inserted by Act No. 7 of 2017 with effect from 1 June 2017, requires an individual or Hindu undivided family, other than those referred to in the second proviso to s.194-I, responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, to deduct; sub-section (2) fixes the time of deduction at the credit of rent for the last month of the previous year, or the last month of the tenancy if the property is vacated during the year, or payment, whichever is earlier; sub-section (3) disapplies s.203A; and sub-section (4) provides that where tax is required to be deducted under s.206AA the deduction shall not exceed the amount of rent payable for that last month. The Explanation defines rent as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both. The rate in each section was five per cent as enacted and was substituted by two per cent by Act No. 15 of 2024 with effect from 1 October 2024. The matter was decided on 2024-10-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not applicable — statutory provisions. The operative position is that from 1 October 2024 the rate under both s.194M and s.194-IB is two per cent, and for any earlier period it is five per cent. The thresholds are unchanged: fifty lakh rupees in aggregate in a financial year to one resident under s.194M, and fifty thousand rupees for a month or part of a month under s.194-IB. Neither section requires the deductor to obtain a tax deduction account number.
Not applicable — statutory provisions, and no decision on either section has been found. What follows is this library's reading of the statutory words. The rate change is established by the footnote 'Sub. for "five" by Act No. 15 of 2024, w.e.f. 1-10-2024' printed against the rate in both sections, and by comparing the current text with the earlier ones, which print 'five per cent' and carry no such footnote. Act No. 15 of 2024 is the Finance (No. 2) Act 2024. In the words reproduced by the source cited on this page: "deduct an amount equal to two per cent of such sum as income-tax thereon"
It was decided by the CBDT Circulars & Instructions on 2024-10-01 and is reported as Income-tax Act 1961, ss.194M and 194-IB; s.194M inserted by Act No. 23 of 2019 w.e.f. 1 September 2019 and s.194-IB inserted by Act No. 7 of 2017 w.e.f. 1 June 2017; rate in each substituted for 'five' by Act No. 15 of 2024 w.e.f. 1 October 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194M, section 194-IB, section 203A, section 194C, section 194H, section 194J, section 194-I, section 206AA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not applicable — statutory provisions. The operative position is that from 1 October 2024 the rate under both s.194M and s.194-IB is two per cent, and for any earlier period it is five per cent. The thresholds are unchanged: fifty lakh rupees in aggregate in a financial year to one resident under s.194M, and fifty thousand rupees for a month or part of a month under s.194-IB. Neither section requires the deductor to obtain a tax deduction account number. It arises in TDS Defaults, House Property and How Tax Law Is Read matters, on section 194M, section 194-IB, section 203A, section 194C, section 194H, section 194J, section 194-I, section 206AA of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For s.194M check that your client is not already required to deduct under s.194C, s.194H or s.194J — if he is, s.194M does not apply to him and the ordinary section does. For s.194M test the fifty lakh figure on the aggregate of such sums credited or paid to one resident during the financial year, not payment by payment. For s.194-IB test the fifty thousand rupee figure per month or part of a month, deduct once at the time of credit of rent for the last month of the previous year or the last month of the tenancy if the property is vacated during the year, and remember the cap in sub-section (4) where s.206AA applies for want of PAN. Do not apply for a TAN. Section 203A is expressly disapplied by s.194M(2) and s.194-IB(3); use the challan-cum-statement route — the department's own footnotes to these sections point to Form 26QD and Form 16D for s.194M and Form 26QC and Form 16C for s.194-IB. Note the reach of the definitions in s.194M: 'contract', 'commission or brokerage', 'professional services' and 'work' all take their meanings from the Explanations to ss.194C, 194H and 194J, so the case law on those words applies.
Searched for later treatment; none was found. That is not the same as a source affirming it. The amendment the entry itself records — 'two' substituted for 'five' in section 194M and in section 194-IB by the Finance (No. 2) Act, 2024 (Act No. 15 of 2024) with effect from 1 October 2024 — is the last one. Neither section appears in the published Notes on Clauses to the Finance Bill, 2025 among the sections of the 1961 Act that Bill amends, although many neighbouring withholding sections do (193, 194, 194A, 194B, 194BB, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBC, 194Q, 194S), so the list is a meaningful absence here and not merely a gap. The rate and threshold as stated therefore remain the current text. No decision on either section has been found, which is unsurprising: these are the two provisions that catch payers who have never had a withholding obligation before, and such a payer rarely litigates. Two things a practitioner should nonetheless watch. The thresholds did not move with the rate, so an older note is wrong on the rate and right on the threshold, which is exactly the combination that produces a half-corrected computation. And the deduction machinery is unusual in both sections — no TAN, a challan-cum-statement rather than a quarterly return, and in s.194-IB a single deduction from the last month's rent — so an error there is a procedural default even where the arithmetic is right. This states the law under the Income-tax Act, 1961, which governs every assessment year up to and including AY 2026-27 and the disputes arising from those years. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This entry is statutory text, not a decision. It asserts no holding, no bench and no judge's words; the quoted string is statutory text. The date in 'decided_on', 1 October 2024, is the date from which the rate change operates and is NOT a decision date. The rate change is dated from the sections themselves. Both s.194M and s.194-IB print 'two per cent' with the footnote 'Sub. for "five" by Act No. 15 of 2024, w.e.f. 1-10-2024'. A WARNING ABOUT OLDER REPRODUCTIONS, because it is how a reader gets the rate wrong. Texts of both sections predating the amendment still print five per cent and carry no such footnote, and they are in wide circulation. Check for the footnote before using a figure, and check the date of the payment before using the footnote. The form references quoted in this entry are cross-references rather than statutory text, and they come from footnotes carried on the earlier texts of the two sections — for s.194M, 'See rules 28, 30, 31, 31A and 37BA and Form Nos. 13, 16D, 26B, 26QD and 27A', and for s.194-IB, 'See rules 30, 31, 31A & 37BA & Form Nos. 16C, 26B, 26QC and 27A'. Those footnotes are not carried on the current texts, so they are reported here as at the date of the text on which they appear, and the forms should be confirmed before filing. One further point a reader should notice. The earlier text of s.194-IB(4) referred to 'section 206AA or section 206AB', while the current text refers only to s.206AA. That is a consequential change following the omission of s.206AB, and it matters for a year in which s.206AB was still in force: the cap in sub-section (4) then operated in respect of both sections and not only one. Finally, no decision of any court or tribunal on either section has been located, and nothing on this page rests on one. Two points of structure worth setting out, because these sections are used by payers who have no other withholding obligation and no adviser watching the detail. Section 194M applies only to an individual or Hindu undivided family NOT already required to deduct under s.194C, s.194H or s.194J. The first question is therefore never the fifty lakh threshold but whether the ordinary section already applies; if it does, the deduction is made under that section, at its own rate and threshold. Section 194-IB works differently from an ordinary withholding provision: the whole year's tax is deducted once, on credit of rent for the LAST MONTH of the previous year or of the tenancy, or payment, whichever is earlier. Sub-section (4) caps that deduction at the month's rent where s.206AA applies. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not applicable — statutory provisions. The operative position is that from 1 October 2024 the rate under both s.194M and s.194-IB is two per cent, and for any earlier period it is five per cent. The thresholds are unchanged: fifty lakh rupees in aggregate in a financial year to one resident under s.194M, and fifty thousand rupees for a month or part of a month under s.194-IB. Neither section requires the deductor to obtain a tax deduction account number.
TaxSphere, “Statutory position — s.194M and s.194-IB: the rate fell from five per cent to two per cent on 1 October 2024”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-194m-and-194ib-two-per-cent-from-1-october-2024/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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I am an individual paying Rs 70,000 a month rent, and separately I have paid an interior contractor Rs 62 lakh for my own house. When exactly do I deduct, how much, and do I need a TAN?
I pay rent for a warehouse and I also hire a generator on a monthly charge. Do I deduct under section 194-I, at what rate on each, and from what figure does the obligation start — is it an annual total or a monthly one?
My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
I pay a consultant, I pay an engineering firm for technical work, and I pay my company's non-executive director a sitting fee. Do I deduct two per cent or ten per cent on each, and does the fifty thousand rupee limit apply to all three?
