Section 194J: Professional & Technical Services – Royalty payments
> As per the provisions of Section 194J of Income Tax Act 1961, any person other than Individual or HUF shall be liable to deduct TDS at 10%, if any sum exceeding INR 30,000/- is paid by way of:
a) Fee for professional services,
b) Fee for technical services
ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or
c) Royalty (Explanation 2to clause (vii) of sub-section (1) of section 9)
d) any sum referred to in clause (va) of section 28
Note:
1. TDS exemption limit shall not be available if the payment is made to the director of the company by way of remuneration, fees or commission (excluding salary)
2. TDS shall be deducted at the rate of 2% if the payee (receiver of money) is engaged in the business of call center (w.e.f. 01.04.2020)
> Explanation 2to clause (vi) of sub-section (1) of section 9
Royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains“) for—
i. the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
ii. the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
iii. the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
iv. the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
iva. the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;
v. the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
vi. the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)
Section 194C: Payment to contractors:
> As per the provisions of 194C, any person making payment to any resident for carrying out any work in pursuance of contract shall be responsible to deduct TDS on income at the rate of:
a. 1% if the payment is made to individual or HUF
b. 2% if the payment is made to a person other than individual or HUF
> Work shall include:
a. advertising;
b. broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
c. carriage of goods or passengers by any mode of transport other than by railways;
d. catering;
e. manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
But does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.
Frequently Asked Questions:
Q 1. Whether payment made by distributor to producer for exhibition of film in theatre be liable to TDS?
Ans. Basis clause (v) of explanation2 of sub-section (1) of Section 9, specific exclusion is given from royalty for distribution or exhibition of cinematographic films. Hence, TDS shall not be applicable.
Q 2. Whether any payment made as a reimbursement of development fee be liable to TDS?
Ans. Basis CBDT Circular no 715 dated 8th August 1995, TDS shall be applicable on payments where contractual obligations are inclusive of reimbursements of expense. Any payment made in nature of reimbursement does not constitute an income in the hand of payee. However, for reimbursement at cost a separate tax invoice needs to be raised.
Case law: Basis the judgement cited by Delhi Bench in ITO vs. Dr. Willmar Schwabe India (P) Limited [2005], TDS cannot be deducted on reimbursement of expenses provided a separate invoice is raised for the same and the payment is at cost i.e. it does not involve any mark up. Correspondingly, the expense in the hands of the payer cannot be disallowed u/s 40(a)
Q 3. Whether any payment made as production of content cost be liable to TDS?
Ans. Any payment made to the producer for production of content shall be liable to TDS u/s 194C at the rate of 2% subject to the content being as per the specifications of the customer.
Case law: Production of motion films or cinematographic films would fall within the meaning of ‘work’ as contemplated u/s 194C: Alliance Media & Entertainment v. ITO [2017] (Mumbai tribunal).
Q 4. Whether any payment made by broadcaster to production house for telecasting of content for a definite period be liable to TDS?
Ans.
- Basis CBDT circular no 04/2016, if the content is produced as per the specifications of broadcaster and the copyright of the content also gets transferred to the broadcaster such contract is covered as work u/s 194C and TDS shall be deducted at the rate of 2%
- Basis clause (v) of explanation2 of sub-section (1) of Section 9, if the payment made by broadcaster for the content already produced i.e. for granting of license it shall be considered as royalty payment u/s 194J and TDS shall be deducted at the rate of 10%
- Note: If the payment is made for acquisition of content license for a period of 99 years, it shall not constitute royalty u/s 194J: Case: Asst CIT v. S. Panduranga Rao [2015], Chennai
Q 5. Whether any payment for sale of rights for perpetuity be liable to TDS?
Ans. Where the rights are sold for perpetuity, IP of the content is sold, it shall not be covered under the purview of royalty and shall be considered as sale of goods. Hence, no TDS shall be applicable.
Case law: Assistant CIT v. S. Panduranga Rao [2015], (Chennai)
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