Section 194J- TDS on Fees for professional or technical services

TDS deduction on fees for professional or technical services is covered by section 194J of the Income Tax Act. This category includes doctors, accountants, engineers, interior designers, architects, and those in the advertising industry. This article will walk you through all of the provisions of Section 194J of the Income Tax Act, 1961.

What you will read in this Article?

  • Applicability of Section 194J i.e TDS on Professional and technical services fees
  • Meaning of fees for Professional/ Technical services or Royalty for Section 194J
  • TDS Rate under section 194J
  • When the liability to deduct TDS arise under Section 194J?
  • What is the threshold limit under Section 194J for TDS deduction?
  • Non-applicability of TDS under section 194J (Cases where TDS is not to be deducted under Section 194J)
  • When TDS can be deducted at a lower rate under section 194J?
  • What are the compliances after deduction of TDS.?

Applicability of Section 194J i.e TDS on Professional and technical services fees

Any person, other than an individual or a HUF (Hindu undivided family), who is responsible for paying to a resident any sum by way of-

  • fees for professional services, or
  • fees for technical services, or
  • any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192 (TDS on Salary), to a director of a company, or
  • Royalty, or
  • Non-compete referred to in of Section 28(va)

shall deduct TDS at specified rates.

However, an individual or a HUF shall be liable to deduct TDS if his total sales, gross receipts, or turnover from the business or profession carried on by him exceeds Rs 1 Crore in case of business or Rs 50 lakhs in case of the profession during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services* is credited or paid

*Note – It may be noted that an individual/HUFs shall deduct TDS only in respect of fees for professional services or fees for technical services, meaning thereby that individuals and HUFs are not required to deduct tax at source under section 194J on royalty and non-compete fees.


Meaning of fees for Professional/ Technical services or Royalty for Section 194J

Meaning of Professional Service

“Professional services” means services rendered by a person in the course of carrying on

  • legal,
  • medical,
  • engineering,
  • architectural profession,
  • the profession of accountancy,
  • technical consultancy,
  • interior decoration,
  • advertising or
  • such other profession as is notified by the CBDT for the purposes of section 44AA or of this section.

Meaning of Technical Services

“Technical services” means any consideration (including any lump sum consideration) for the rendering of any

  • managerial,
  • technical,
  • consultancy services (including the provision of services of technical or other personnel)
  • but does not include consideration for any construction, assembly, mining, or like project undertaken by the recipient or consideration which would be the income of the recipient chargeable under the head “Salaries”.

Meaning of Royalty

“Royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for-

  • the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trademark, or similar property,
  • the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trademark or similar property,
  • the use of any patent, invention, model, design, secret formula or process or trademark, or similar property
  • the imparting of any information concerning technical, industrial, commercial, or scientific knowledge, experience, or skill
  • the use or right to use any industrial, commercial, or scientific equipment but not including the amounts referred to in section 44BB (Section 44BB – Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils)
  • the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or videotapes for use in connection with television or tapes for use in connection with radio broadcasting
  • the rendering of any services in connection with the activities mentioned above.

TDS Rate under section 194J

TDS under section 194J shall be deducted at the following rates

S. No. Nature of Services TDS Rate
1. In case of fees for technical services (not being professional services) or royalty where such royalty is in the nature of consideration for sale, distribution, or exhibition of cinematographic films 2%
2. In the case of a payee, engaged only in the business of operation of the call centre. 2%
3. In any other case. 10%

 

Note: Section 206AA of the Indian Income-tax Act, 1961 (the Act) provides that if PAN is not furnished by the payee the TDS will be deducted at a rate of 20%.

Read another relevant article: Section 206AB and Section 206CCA – Higher Rate of TDS/TCS for non-filers of ITR


When the liability to deduct TDS arise under Section 194J?

TDS shall be deducted at the earlier of the following:-

  • At the time of credit of such sum to the account of the contractor OR
  • At the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.

Note: Even where income is credited to any other account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.


What is the threshold limit under Section 194J for TDS deduction?

TDS shall not be deducted if the amount or aggregate of the amounts of fees credited or paid or likely to be credited or paid in respect of each service during the financial year to the payee does not exceed Rs 30000 in case payment is related to: –

  • fees for professional services
  • fees for technical services
  • royalty
  • Non-compete fees as referred to in Section 28(va)

If the person has Nil TDS deduction or a lower rate of TDS under section 197 then TDS will be deducted at that rate mentioned in the certificate.

Important Points to consider

  • Here the limit of Rs 30,000 under section 194J is applied separately for each fee for professional services, fees for technical services, royalty, and non-compete fees. It means that if the payment to a person towards each of the services is upto Rs 30,000, then TDS shall not be deducted even though the aggregate payment or credit exceeds Rs 30,000 to such person.
  • The limit of Rs 30,000 for deduction of tax is not applied in case of any remuneration or fees or commission, by whatever name called, other than those on which tax is deductible under section 192 (Salary), paid or payable to a director of a company.
  • For example, a company “X” is liable to pay other company “Y” the following bills:- Bill A of Rs 25,000, Bill B of Rs 35,000, Bill C of Rs 10,000, and Bill D of Rs. 50,000. Here the aggregate amount of all bills is Rs. 1,20,000 which is more than Rs 30,000, but TDS is required to be deducted only on Bill no B and D, since it exceeds Rs 30,000. Hence limit of Rs 30000 is to be considered separately for each service except for any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192 (TDS on Salary), to a director of a company.
  • The TDS is required to be deducted from the whole amount if it exceeds Rs 30,000 limit.

Non-applicability of TDS under section 194J (Cases where TDS is not to be deducted under Section 194J)

(i.) If the amount or aggregate of the amount paid or payable separately for fees for professional or technical services, royalty and Non-compete fees as referred to in Section 28(va) is upto Rs 30,000.

(ii.) An individual or HUF is not liable to deduct tax at the source.

However, an individual or a HUF shall be liable to deduct TDS if his total sales, gross receipts, or turnover from the business or profession carried on by him exceeds Rs 1 Crore in case of business or Rs 50 lakhs in case of the profession during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services* is credited or paid.

*Note – It may be noted that an individual/HUFs shall deduct TDS only in respect of fees for professional services or fees for technical services, meaning thereby that individuals and HUFs are not required to deduct tax at source under section 194J on royalty and non-compete fees.

(iii) An individual or HUF shall not be liable to deduct TDS on the amount paid/payable by way of fees for professional services if such amount is exclusively for personal purposes.


When TDS can be deducted at a lower rate under section 194J?

As per section 197 of the Income Tax Act, 1961 a person i.e deductee can apply for NIL or a lower rate of TDS to the Assessing Officer.

If Assessing Officer is satisfied that the total income of the recipient i.e deductee justifies the deduction of TDS at any lower rates or no deduction of TDS the Assessing Officer shall give to him the certificate of lower deduction.

Details that are required to be given at the time of filing an application for a lower or NIL rate of TDS

  • Name and address of the assessee
  • PAN details
  • The purpose for which payment has been received
  • Details of the income in the last three years
  • The projected income in the present financial year
  • Any tax payment done in the last three years
  • Tax payment done for the present financial year

(i.) Deposit of TDS – Due date

The TDS deducted shall be deposited into the government account within 7 days from the end of the month in which the TDS was deducted.

(ii.) Submission of TDS Returns

The deductor of TDS is also required to submit the TDS return on a quarterly basis.

The due date of TDS return is as follows:

Quarter Relevant Period Due date of TDS Return
Quarter I 1st April to 30th June 31st July
Quarter II 1st July to 30 the September 31st October
Quarter III 1st October to 31st December 31st January
Quarter IV 1st January to 31st March 31st May

 

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