Section 194J TDS on Professional or Technical Service – all details

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Section 194J – TDS on Professional or Technical Service, This article is all about the Tax to be deducted under section 194J for the Professional fees or technical services which are to be deducted in case of the payments to be made to them. This article will cover what is covered under this section, definitions of the same, what are the other disputed cases, time of deposit of the TDS, exemptions in certain cases, non deduction of TDS in certain cases and other relevant facts. Now you can scroll down below n check more details regarding “Section 194J – TDS on Professional or Technical Service”

Section 194J TDS on Professional or Technical Service

Following persons are responsible to deduct tax at source for paying fees for professional or for technical service or royalty or any sum referred to in section 28(va) (i.e., fees for non-competence) or director fees (which is not covered u/s 192) to a resident person –

  • Any person, other than individual or HUF; &
  • Individual or HUF, whose books of account are required to be audited u/s 44AB (due to turnover or gross receipt criteria) during the financial year immediately preceding the financial year in which such fees is credited or paid.

What is covered under 194J ?

Section 194J would be applicable when any amount paid to the resident person as :-

  • Fees for Professional Services Rendered
  • Fees for Technical Services Rendered
  • Fees for Royalty
  • Non Compete Fees Paid

Must Read – TDS Rate Chart

Note: Tax cannot be deducted if the aggregate amount of such fees credited or paid during the financial year to the payee does not exceed:

Nature of PaymentAmount
Professional feesRs 30,000
Fees for technical serviceRs 30,000
RoyaltyRs 30,000
Any sum referred to in sec.28(va)Rs 30,000
Director fees by whatever name called, (which is not covered u/s 192)Nil

Note: Rs 30,000 limit is not on an individual transactions. If several professional bills in a year together exceed the amount of Rs 30,000, the tax shall be deducted, even though any individual bill amount does not exceed Rs 30,000.

The tax shall be deducted at the time of payment or crediting the payee, whichever is earlier @ 10% (@ 2% in case payee is engaged only in the business of operation of call center)

When TDS cannot be made

  • 1. Individual or HUF shall not be liable to deduct income-tax on fees that are credited or paid exclusively for personal purposes of such individual or any member of HUF.
  • 2. Fees paid by non-resident: Any fees paid through regular banking channels to any professional who is resident in India by the non-resident who does not have an agent or business connection or permanent business establishment in India, may not be subject to this provision [Circular No.726 dated 16-10-1995].

Elaboration:

1. Fees for Professional Services Rendered – Here the term Professional Services would include any services which carried on purpose of legal, medical, engineering or any architectural services, or any technical consultancy services, interior designing services, decoration services, advertising services or any other services which are notified by the board from timely basis.

2. Fees for Technical Services Rendered –Here the term technical consultancy would include any consideration paid for the services of technical, managerial or consultancy services which would not include services under which the income of the recipient would be chargeable under the head salary which can be the project regarding the construction services, mining services, assembly services, etc.

Must Read – TDS under Section 194A

3. Fees for Royalty – Here the term Royalty would include the consideration received for the following –

  • Right to use any industrial or commercial or scientific equipment.
  • Right to use any patent, design, model, invention, secret formula or any similiar property.
  • Imparting any knowledge about the scientific know how, commercial or industrial know how,
  • Transfer of all or any rights for the patent, design, model, invention, or trademark or similar property ( It would also include the granting of licensing )

4. Non Compete fees under Section 28 – The general ideology of the word “Non-Compete Fees” would include any fees which is paid on account of any agreement made there of for not sharing any patent, trademark, license, franchise, trademark, or any commercial rights of similar nature. It would also include any fees paid for not carrying out any similar business.

Must Read – TDS on Non residents Section 195

Rate of TDS:

  • There has been dispute regarding the rate of tax that can be implicated on the same. Some are using 10% + EC & SHEC as TDS rate, but in original case the rate of 10% is the rate on which the TDS is to be deducted.
  • In case of deductee is not having PAN, then the TDS is to be applied at the rate of flat 20%.

Disputed Cases:.

  • The transaction charges which are required to be paid by stock broker to the Stock exchanges constitute technical services and hence are required to get TDS cut and paid to the Central Government.
  • There has been query whether the medical services which are provided by the doctors are the payment to them required to deduct the TDS or not. The answer to that question is Yes, as it forms a part of Technical services.

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