New Amendment in TDS – Section 194J and 194C
An Overview of the New Amendment in TDS: Sections 194J and 194C
Applying Tax-Deducted at Source (TDS) rules correctly is very important in taxation. Sections 194C and 194J of the Income Tax Act of 1961 deal with TDS on payments to contractors and fees for professional or technical services. Confusion in applying these sections has led to incorrect TDS deductions, causing issues for taxpayers. To fix this, a new amendment to Section 194C is proposed to exclude payments covered by Section 194J. This change aims to make TDS rules clearer and prevent mistakes. Let’s look at these changes in detail.
Understanding Sections 194C and 194J
Section 194C: Payments to Contractors
- TDS Rates:
- 1% for payments to individuals and Hindu Undivided Families (HUF)
- 2% in other circumstances
- Work Includes:
- Advertising
- Broadcasting and telecasting
- Carriage of goods and passengers
- Catering
Section 194J: Fees for Professional or Technical Services
- TDS Rates:
- 2% for technical services (excluding professional services)
- 10% for professional services, royalties, and non-compete fees
- Professional Services Include:
- Legal, medical, engineering, architectural, accounting, technical consulting, interior decoration, and other the same services
Inconsistency and the Need for Change
Existing Issue
- Clause (iv) of Section 194C defines “work” but does not exclude payments under Section 194J, causing incorrect TDS application and potential disputes.
Proposed Amendment
- Amend Section 194C to state that sums referred to in Section 194J do not constitute “work” for TDS purposes. The proposed amendment to Clause (iv) of Section 194C reads: “It is proposed to amend the said Clause (iv) to exclude any sum referred to in subsection (1) of Section 194J from the definition of ‘work’.”
Implementation and its impact
Effective Date
- The amendment takes effect from 1st October 2024.
Amendment Details
- In Section 194C, Clause (iv) will be amended to exclude sums under Section 194J from the definition of “work”.
Implementation and its impact
- Clarity in TDS Application: Clear guidelines on applying TDS under Sections 194C and 194J.
- Compliance: Proper compliance with TDS provisions is necessary to avoid penalties and disputes.
- Administrative Ease: Simplified administrative process for deductors with clear distinctions between payments under Section 194C and Section 194J.
The amendment to Section 194C of the Income Tax Act clarifies and precises TDS provisions, preventing erroneous deductions and ensuring smoother compliance. As it takes effect on 1 October 2024, taxpayers and professionals should adjust their practices to remain compliant and avoid potential issues.
If you have any questions or doubts regarding these amendments, please ask in the comments below.
