Section 194J – TDS on Professional Services or Technical services. TDS is required to be deducted by the service receiver to the service provider under 194J. TDS is a mandatory deduction, which needs to be deposited into the government treasury as on the prescribed date and specified rate.
Section 194J – TDS on Professional Services or Technical services
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 are credited or paid.
Fees for professional or technical services
- Also includes remuneration/fees/commission to a director, other than those covered u/s, 192
- Royalty and non-compete fees u/s 28(va)
- @ 10% and if payee is engaged in call centre business, then @ 2%
- TDS applicable is payment > 30,000
- For professional service, technical service, royalty and non-compete fee, 30K limit applicable separately
- TDS should be deducted at the time of credit or payment, whichever is earlier
- Not applicable to such individuals or HUF whose sale/receipts from business/profession does not exceed 1 crore and 50 lakh u/s 44AB in the immediately preceding FY
- Individual and HUF not liable to deduct TDS on professional services exclusively for personal purposes
|Professional Services||Technical Services|
|legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising||Managerial services, Technical services, Consultancy services, Provision of services of technical or other personnel|
|Sec. 44AA notified professions:, authorized representatives, film artist, company secretary||Does not include: Consideration for any construction, assembly, mining or like project and consideration under salaries|
|Notified , professional services for 194J, in sports: Sports Persons, Umpires and Referees, Coaches and Trainers, Team Physicians and Physiotherapists, Event Managers, Commentators, Anchors, Sports Columnists|
|All other professions outside scope of 194J, unless notified|
- TPAs liable to deduct tax u/s 194J on payment to hospitals on behalf of insurance companies under various schemes because services rendered by hospitals to various patients are primarily medical services [CN 08/2009]
- TDS u/s 194J for use or right to use computer software since the same falls within the definition of royalty. But not applicable on the following (NN 21/2012):
- software is acquired in a subsequent transfer without any modification by the transferor
- TDS u/s 194J deducted on payment for any previous transfer of such software
- transferee obtains a declaration from the transferor that TDS has been deducted along with his PAN
Where section 194J (TDS on professional fees or technical services) is applicable?
Deductor (service receiver) should deduct TDS under 194J @ 10% on all the following payments, where it exceeds Rs.30000 during any financial year. (Exception- threshold of Rs. 30000 is not applicable to remuneration paid to directors other than that taxed under the head of the salary)
- professional service (includes legal service, medical service, accounting service, any consultancy,) or
- technical services or consultancy (technical, managerial,) or,
- where service provider receives the benefits as royalty or,
- where the receiver receives non-compete fees or fees received for not carrying any activity with respect to any business or,
- where the service provider is a director and the remuneration paid to him (apart from the salary)
This even makes following payments to be covered under the purview of the section 194J
- payments made to hospitals
- payments made to artists by advertising agencies
- payment made to share registrar etc.
Exclusion from the TDS purview with respect to section 194J
However, the article states expressly that following would be excluded from the applicability
- where total sales, gross receipts, or turnover is not more than
- where any technical or professional fees is paid, or credited for the personal use of such individual or HUF, or
- 1 crore in case of business
- 25 lakhs in case of profession
Simply put, where any individual or HUF is not liable to a tax audit in any year under section 44AB.
- Consideration received for construction, assembly or mining,
- Any payment received which would be liable to be taxed under the head salary.
- Where aggregate of the sum of money received, do not exceed Rs.30000 in any financial year.
- TDS is not to be deducted from the service tax.
Liability for deduction
- In case of individual or HUF – Liable to deduct TDS under section 194J if their books of accounts are required to be audited under section 44AB for the preceding financial year.
- In any other case – Mandatory that TDS under section 194J must be deducted, where TDS is required to be deducted as per the conditions.
- In case of government agencies – Deduction done by or on behalf of the government is liable to deposited on the same day as that of deduction.
- In any other cases – TDS should be deposited within one week from the end of the month on which TDS was deducted.
- For TDS deducted on amounts paid or credited on 31st March (end of the year)
To be deposited within two months from 31st March of the year in which it is paid or credited.
Where the Deductor fails to deduct TDS, then he will be liable for interest @ 1% per month till deduction.
Where the Deductor fails to deposit, TDS deducted, then he will be liable to pay interest @ 1.5% per month till the TDS is paid.