Clarification regarding applicability of section 194C/194J in case of advertising agency

1. Finance Act, 1995 has amended section 194C dealing with tax deduction at source for carrying out any work by introducing Explanation III therein. By this Explanation, the expression “work” has been defined, inter alia, to also include—

    (a)   advertising;

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    (b)   broadcasting and telecasting including production of programmes for such broadcasting and telecasting.

According to the amended provisions, tax is to be deducted at the rate of 1 per cent in cases of advertising and at the rate of 2 per cent in the other cases, of the sum as income-tax on income comprised therein.

2. The Act has also introduced section 194J and this section deals with deduction of tax at source from ‘fees for professional or technical services’. This section prescribes deduction of tax at source at a rate of 5 per cent of the sum as income-tax on income comprised therein. The term “Professional Services” has been defined in the Explanation to this section to mean services rendered by a person in the course of carrying on legal, medical, engineering or the profession of accountancy or technical con­sultancy or interior decoration or advertising or such activity as is notified by the Board for the purpose of section 44AA or of this section.

3. Representations have been received regarding the scope and meaning of the term “advertising” used in section 194C(1), where tax deduction at source has to be made at the rate of 1 per cent as against rate of 2 per cent in the other cases. It is clarified that advertising may be in print or electronic media, i.e., in newspapers, periodicals, radio, television, etc. In such cases the tax will be deducted at the rate of 1 per cent of the payment made for advertising including production of programmes for such broadcasting and telecasting to be used in such advertising. In all other cases of work of broadcasting and telecasting including production of programmes for such broadcasting and telecasting, where advertising is not involved, tax will be deducted at the rate of 2 per cent of the sum.

4. It is also clarified that the tax will be deducted at source under section 194J from payments made for professional services. Thus, when an advertising agency makes payments for professional services to a film artiste such as an actor, a cameraman, a director, etc., tax will be deducted at the rate of 5 per cent.

Circular : No. 714, dated 3-8-1995.

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Category : Income Tax (25143)
Type : Circulars (7506) Notifications/Circulars (30263)

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