194M & N : Cash flow problem for the event Management companies

The maiden budget for the year 2019 was presented in the parliament by the new finance minister Nirmala Sitaraman on 05-07-2019 and the same has been settled now. So whatever changes are there the same need to follow for the entire year and later on until there is a change.

For the event management industry, there are some rough patches that are going to create cash flow related problem in the future in spite of the fact that the government has taken back the increased surcharge, some of them are as fellow:

Section 194(N): TDS by the bank on Cash Withdrawal

What is this?

In order to discourage cash transactions and move towards cashless economy, the government has incorporated new section 194N in the Act to provide for levy of TDS at the rate of two per cent on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.

Why this is relevant to the Event Management Industry:

The event management industry is not that much formal when it comes to the other industries. The players of the event management like artists, designers, infrastructure service providers and others mostly operates individually and there is a lack of formalization and mostly their payment term is cash only.

So in order to fulfil the payment obligation to these players, the companies need to withdraw lots of cash and with the introduction of new provision where the bank and other financial institution will deduct 2% TDS on such withdrawal. It's only going the make life difficult as there is going to be the liquidity crises. 

Section 194M: TDS on payment to resident contractors and professionals

What is this?

Section 194M of the Act provides for deduction of TDS at the rate of five percent. on the sum, or the aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an individual or a Hindu undivided family, if such sum, or aggregate of such sums, exceeds Rs. fifty lakh rupees in a year.

Why this is relevant to the Event Management Industry:

If an event management company is providing the services to the individual and the HUF clients related to the wedding or the similar events then these kinds of transactions are supposed to fall under the above provision and the payer will be under an obligation to deduct the TDS from the payment made to the event management company resulting into cash crunch for the event management company.

What is the way out?:

To be precise, when it comes to the compliance with the law there is no way out but to comply with the same. However proper planning can be done to take advantage of the legal provision so that there is no non-compliance of the law and the efficiency and liquidity do not get affected. Some of them are as:

• Encouraging the relationship with the formalized vendors.
• Maximum payments should be made through the banking channel.
• Discourage cash culture.
• Effective negotiation with the individual client when it comes to organizing the wedding and other similar events.