TDS Section 194J is seeing renewed attention after the passage of Finance Bill 2020, which includes amendments to Section 194J that took effect on April 1, 2020. Section 194J TDS of the Income Tax Act of 1961 contains rules for deducting TDS on payments for scientific and skilled services.
What is Section 194J of Income Tax Act?
Professional and technical service fees are two of the most common and frequent payments made in daily routine. “Professional services” refer to services provided by professionals like lawyers, doctors, accountants, engineers, architects, etc. “Technical services” usually are related to developing, using, or transferring technical knowledge or information.
According to Section 194J of the Income Tax Act, any person (other than an individual or a Hindu Undivided Family) making payment to a resident for professional or technical services is required to deduct TDS at the rate of 10% or 2% as applicable of the amount paid or credited to the recipient. Also, if the payee does not provide PAN to the deductor, the 194J TDS rate would be 20%.
Individuals or a Hindu undivided family whose total sales or turnover from the business or profession exceed the threshold limits specified under section 44AB during the immediately preceding financial year in which fees for professional services or technical services are credited or paid shall be liable to deduct income-tax under this section.
Regarding fees for technical services provided by a person not resident in India, the TDS rate is generally higher at 20%, and Section 195 covers such payments.
The person making the payment is responsible for deducting the TDS and depositing it to the government within the specified time frame. The deducted TDS is then credited to the recipient’s income tax account, and the recipient can claim credit for the TDS while filing their income tax return.
Types of Payments in 194J
- TDS on professional fees
- Fee for technical services
- Remuneration paid to directors
- Royalty
- Payments in the nature of non-compete fees
Who is required to deduct TDS u/s 194J?
As per Section 194J, section, any person (other than an individual or HUF who is not covered u\s 44AB in the preceding FY) who pays fees to residents for professional or technical services will be required to deduct tax at source u/s 194J.
However, individuals or HUFs will be required to deduct TDS if they are liable to audit u/s 44AB (a) and (b).
The person here means :
- Central or State Government
- Local Authority
- Corporation
- Company
- Cooperative Society
- Trust
- University
- Registered Society
- Firm
- Individual/HUF/AOP/BOI must get accounts audited u/s 44AB (a) and (b)
What is the meaning of professional service & technical services?
Professional services under section 194J means
- Legal Services
- Medical Services
- Engineering Services
- Architectural Services
- Accountancy or Technical Consultancy Services
- Interior Decoration Services
- Advertising Services
- Notified Professions (which are related to sports activities: sportspersons, umpires, referees, coaches, trainers, team physicians, physiotherapists, event managers, commentators, anchors, and sports columnists)
Technical services under section 194J means
Any consideration (including any lump sum consideration) for the rendering of any
i) Managerial
ii) Technical or
iii) Consultancy services (including the provision of services of technical or other personnel)
but does not include consideration for any
i) Construction
ii) Assembly
iii) Mining or
iv) like a project undertaken by the recipient or consideration which would be the income of the recipient chargeable under the head “Salaries.”
Amendments in TDS Section 194J
TDS will be withdrawn at a rate of 2% in the case of payments for specialized services (not being skilled services) and up to 10% in all other cases under Section 194J.
Individuals or HUFs whose net revenue, gross earnings, or turnover from their company or career surpass Rs 1 crore in the case of a business or Rs 50 lacs in the case of a profession during the Financial year immediately preceding the FY in which such interest is charged or charged are required to deduct TDS. Where Section 44AB has been used, monetary caps would be used instead.
What is the limit to deduct TDS u/s 194J?
TDS must be deducted if the payment amount in a year exceeds Rs. 30,000/-.
Now, a question may arise in your mind: is this threshold limit the overall limit for all services covered u/s 194J, or it shall be calculated individually for payment of professional fees or technical fees etc.
This limit of Rs. 30,000/- is not a total limit for all services. Payment shall be calculated individually for professional fees, technical fees, royalty fees, or non-competence fees.
Example 194J applicability: XYZ Ltd made the Following payments to Mr. A
| Particulars | Amount |
|---|---|
| Payment made for professional services | Rs. 25,000 |
| Payment made for technical services | Rs. 20,000 |
| Total payment to Mr. A | Rs. 45,000 |
| TDS is not required to be deducted in the above case | |
XYZ Ltd is not liable to deduct TDS from payments made to Mr.A Since INR 30,000 is a separate limit for professional services and fees for technical services, etc.
What is the rate & time limit for deposit of TDS?
194J TDS rate:
| Nature of Payment | 194J TDS rate |
|---|---|
| Fee payments for technical services | 2% |
| Fee payments made to call centers | 2% |
| Royalty paid for the sale, distribution, or screening of a film | 2% |
| Other payments | 10% |
| If the payee fails to provide a PAN | 20% |
Time Limit for Deposit of TDS
| NPayment Type | Non-Government Deductors | Government Deductors |
|---|---|---|
| Payment made before 1st March | 7th day from the end of the month | 7th day from the end of the month |
| Payment made in March | April 30th | Tax payment is made on the date of professional or technical fees to the payee. Still, the corresponding challan is deposited by the 7th day from the end of March. |
When is Section 194J under the Income Tax Act not applicable?
These are the exceptions to Section 194J applicability:
- Where the payment made by an individual or HUF is for personal purposes only.
- If payment is made to a non-resident contractor or sub-contractor.
- The payment amount (at one time or in total during the whole financial year) does not exceed Rs. 30000.
- No TDS by individual\HUF on royalty and non-compete fees( even if commercial).
FAQs
What is Section 194J of the Income Tax Act?
Section 194J of the Income Tax Act, 1961 deals with the deduction of tax at source (TDS) on payments made for professional or technical services. It requires a person making payments for services like legal, technical, consultancy, or royalty to deduct a specified percentage of tax before making the payment to the recipient.
What types of payments are covered under Section 194J?
- Fees for Professional Services: Payments made to professionals like lawyers, doctors, chartered accountants, etc.
- Fees for Technical Services: Payments made for services involving technical expertise or support.
- Royalty Payments: Payments made for the use of intellectual property like patents, copyrights, trademarks, etc.
- Non-compete Fees: Payments made to individuals or companies to prevent them from competing in business.
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