TDS on Fees for Professional or Technical Services – Section 194J
Section 194J of the Income Tax Act deals with the deduction of Tax Deducted at Source (TDS) on fees for professional or technical services.
This section mandates the deduction of TDS by the person making the payment to a professional for their services. The person making the payment (the deductor) is required to deduct a certain percentage of the payment as tax and remit it to the government on behalf of the professional (the deductee).
It’s important for both the professional and the person making the payment to be aware of the TDS provisions of Section 194J applicable to their transaction.
Non-compliance with 194J can attract penalties and interest. Therefore, this article will act as a ready reference to understand the provisions of Section 194J. Let’s understand this section in detail here.
What is Section 194J?
As per Section 194J, any person (not being an individual or a HUF), who is responsible for paying to a resident any sum by way of-
- fees for professional services
- fees for technical services
- any remuneration or fees or commission by whatever name called to a director of a company (other than salary) or
- royalty, or
- non-compete fees for not carrying on any business or profession for a specified time and within certain geographical boundaries or not sharing any technical knowledge or know-how.
shall, at the time of credit or at the time of payment thereof whichever is earlier, deduct an amount equal to ten (10) percent of such sum as income tax on income comprised therein
Meaning of Professional Services
“Professional services” for the purpose of this section (94J) means services provided by a person in the course of carrying on:
- engineering, or
- architectural profession or
- the profession of accountancy or
- technical consultancy or
- interior decoration or
- advertising or
- such other profession as notified by the CBDT under section 44AA or 194J.
To date, CBDT has notified the profession of a film artist, company secretary, and authorized representatives under Section 44AA
CBDT has further notified sportspersons, commentators, event managers, anchors, umpires and referees, physiotherapists, coaches and trainers, team physicians, and sports columnists under Section 194J.
Meaning of Technical Services U/s 194J
“Technical Services” include Managerial, Technical, and Consultancy Services. What these terms mean for the purpose of 194J:
|Services that involve technical expertise or expertise of technology
|Running and Managing the Business.
|Advisory Services where necessary advice and consultation are being provided for business
Threshold limit for Tax deduction under section 194J
The current threshold limit is Rs. 30000 each for Fees for Professional Services, Technical Services, Royalty, and Non-Compete Fees.
Thus, Tax (TDS) has to be deducted in case the payment for professional and technical services exceeds Rs 30,000 during the year. This limit of Rs 30,000 is applicable to each item or payment independently.
However, there is no such limit for any payments (such as remuneration, sitting fees, commission, etc) made to a director of the company.
Rate of TDS under Section 194J
The applicable TDS rate on professional income varies based on the nature of the professional service and the PAN status of the professional.
Currently, the rate of TDS on professional fees is 10% or 2% of the payment (as the case may be). It is 20% in cases where Payee doesn’t have a PAN/doesn’t furnish his or her PAN.
|Nature of payments
|Fees for Technical services
|Fees for Professional Services
(for sale, distribution, or exhibition of cinematographic films)
|In case, Payee does not furnish his/her PAN
FAQs on Section 194J – TDS on Fees for Professional or Technical Services
1. What is Section 194J?
Section 194J is a provision of the Indian Income Tax Act, which deals with the deduction of Tax Deducted at Source (TDS) on fees for professional or technical services.
2. What services are covered under Section 194J?
Section 194J covers two types of services:
- Professional services: Services provided by professionals like doctors, lawyers, accountants, engineers, architects, etc.
- Technical services: Services involving the application of specialized knowledge or skills in the fields of technology, engineering, scientific disciplines, etc.
3. Who is responsible for deducting TDS under Section 194J?
The person or entity making the payment for professional or technical services (the deductor) is responsible for deducting TDS under Section 194J.
4. What is the TDS rate under Section 194J?
The TDS rate under Section 194J is generally 10% of the payment made for professional or technical services. However, if the recipient of the payment does not provide a PAN, the TDS rate increases to 20%.
5. Is there any threshold limit for TDS deduction under Section 194J?
Yes, there is a threshold limit. TDS under Section 194J is not applicable if the total payment to the service provider in a financial year does not exceed Rs. 30,000. If the payment exceeds this threshold, TDS becomes applicable for the entire amount.
6. Do I need a TAN to deduct TDS under Section 194J?
Yes, the person responsible for deducting TDS needs to have a Tax Deduction and Collection Account Number (TAN). TAN must be quoted while depositing the TDS to the government.
7. How and when should I deposit the TDS deducted under Section 194J?
The TDS amount deducted should be deposited using Challan 281 to any authorized bank or through online payment methods. The deposit should be made within the prescribed due dates.
8. What is the frequency of filing TDS returns under Section 194J?
The deductor is required to file a TDS return (Form 26Q) with the Income Tax Department on a quarterly basis. The return contains details of TDS deductions made and information on deductees.
9. Do I need to issue a TDS certificate to the service provider?
Yes, the deductor must issue a TDS certificate (Form 16A) to the service provider whose TDS has been deducted. This certificate acts as proof of TDS deduction and helps the recipient in filing their income tax return.
10. Can I claim the TDS deducted under Section 194J as a tax credit?
Yes, the amount of TDS deducted under Section 194J can be claimed as a tax credit while filing the income tax return. The deductee can adjust this TDS amount against their total tax liability.