TDS Section 194J – Fees for Professional or Technical services
A brief explanation of Section 194J
In this post, we will see in detail what TDS Section 194J is and the various concepts like types of payment, the exemption limit, and the consequences of late remittance. Let’s look at each section in detail:
Introduction to section 194J
TDS, or Tax Deducted at Source, makes tax collection easier by deducting taxes directly from income sources. It reduces the taxpayer’s load during income tax filing because they can claim credit for the taxes already deducted at the source.
Businesses often make payments for professional fees or technical services, like fees to lawyers, doctors, engineers, architects, accountants, decorators, and advertisers. Section 194J covers these payments to residents.
Types of payment covered with an explanation
1.Professional service
The services provided by legal, medical, engineering, architectural, accountancy professionals or technical consultancy, interior decoration, advertising or other profession as notified by the board under Section 44AA. This shall also include a film artist, company secretary, notified sportspersons, commentators, event managers, anchors, umpires and referees, physiotherapists, coaches and trainers, team physicians, and sports columnists.
2.Technical service
Technical service is the fee paid for providing any of the below services:
- Managerial services given to manage and run a business of the client
- Technical services which is to provide services involving technical expertise in any technology
- Consultancy services is the advisory service given to the client w.r.t their business
However, this does not include payment for any construction, assembly, mining or project taken by the recipient or consideration which would be the recipient’s taxable income under “Business”.
Ideally, technical services should include any service provided by the Human and will exclude the services provided by the machines or robots.
3.Non- compete fees
In Section 194J, non-compete fees mean the money or cash equivalent kind given to someone in return for an agreement that stops them from sharing certain things like patents, licences, contracts, trademarks, or business information that could be used for making things, production, or any similar activity.
4.Royalty
Royalty includes any lump sum consideration for:
(i) The transfer of all or a few rights (even granting of a licence) regarding any patent, invention, model, design, secret formula or process or trademark, etc.
(ii) Giving any kind of information on the working or the use of a patent, invention, model, design, secret formula or process or trademark, etc.
(iii) The use of any patent, invention, model, design, secret formula or process or trademark, etc.
(iv) Providing any information based on technical, industrial, commercial or scientific knowledge, experience or skill.
(iv a) The right to use any industrial, commercial or scientific equipment but not the amount as per section 44BB;
(v) The transfer of all or a few rights (even granting of a licence) regarding any copyright, literary, artistic or scientific work and films or tapes used for television or radio broadcasting (do not include the consideration for the sale, distribution or exhibition of cinematographic films).
(vi) The offering of any services related to the activities referred to in the sub-clauses (i) to (iv), (iv a) and (v).
Exemption limit for section 194J
In case of exemption limit under 194J, an amount of Rs. 30,000 for the F.Y. is to be considered independently for royalty,non-compete fees, and technical and professional services fees. But there is no regard for the payments made to a company director as Tax is deducted for any amount paid.
Who should deduct Tax
According to this section, any person (other than an individual or HUF who was not covered under section 44AB in the previous financial year) who pays fees to a resident for professional or technical services is required to deduct Tax at source under section 194J.
However, individuals or Hindu Undivided Families (HUFs) must deduct TDS if they fall under the audit requirement according to sections 44AB (a) and (b).
The term “person” refers to
- Central or State Government
- Local Authority.
- Corporation
- Company
- Cooperative Society
- Trust
- University
- Registered Society
- Firm
- Individuals/HUF/AOP/BOI must have their finances audited under Sections 44AB (a) and (b).
TDS Rate Under Section 194J of the Income Tax Act
The following table shows the tax deduction rates under Section 194J:
|
Payment Method |
Tax Deduction Rate |
|
Fees for technical services |
2% |
|
Fee payments to call centres |
2% |
|
A royalty paid for a film’s sale, distribution, or showing. |
2% |
|
Other payments |
10% |
|
If the payee fails to give his or her PAN, |
20% |
Consequences of non- deduction or late deduction
If you fail to deduct taxes on time or do it late, two things can happen:
Interest Charges: If TDS is not deducted, you will face an interest rate of 1% per month or part of the month. If TDS was deducted but not paid to the government, the interest rate increases to 1.5% per month or part of the month.
Expense Disallowance: If you don’t deduct TDS on time, you can’t claim the deduction of these expenses from your business income. The disallowed expenditure is 30% of the payment.
FAQ
1. What is Section 194J of the Income Tax Act?
Ans: Section 194J regulates TDS provisions related to specific professional and technical services.
2. Do legal charges attract TDS?
Ans: Yes, TDS is applicable on legal charges.
3. What is the minimum payment amount for tax deduction under Section 194J TDS?
Ans: Tax deduction under Section 194J TDS applies to payments equal to or exceeding Rs. 30,000.
4. Who must deduct TDS under Section 194J?
Ans: If paying a resident for professional or technical services, you must deduct TDS. However, individuals and HUFs only need to do this if they are audited under Section 44AB.
5. How can I determine how much Tax was deducted under Section 194J?
Ans: You can receive Form 16 from deductors or check Form 26AS via the income tax e-filing website or the TRACES to examine the specifics of your TDS.
