The present article features the TDS provisions contained under section 194J of the Income Tax Act, 1961 relating to the TDS deduction on fees for professional or technical services.
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Categories of the person covered under section 194J
Every person, except an individual or a HUF, making payment to a resident for notified services is covered under section 194J of the Income Tax Act.
However, it should be noted that, if the gross receipts or sales or turnover of the Individual or a HUF exceeds the monetary limit specified under section 44AB (a) or section 44AB (b), then, they would get covered under section 194J. In short, in case of an individual or a HUF, if they are liable to get their accounts audited, they are required to deduct TDS as per provisions of section 194J.
Every person making payment of the following notified services is required to deduct TDS under section 194J of the Income Tax Act, 1961 –
The term ‘Professional Services’ means services rendered by a person carrying on –
The meaning of the term ‘Fees for technical services’ is the same as that provided in Explanation 2 to section 9 (1) (vii).
‘Fees for technical services’ means any consideration for the rendering of any managerial, consultancy, or technical services. It includes the provision of services of technical or other personnel. The term ‘Fees for technical services’ doesn’t include consideration for any construction, mining, assembly or like project undertaken by the recipient or consideration chargeable under the head ‘salary’.
The meaning of the term ‘Fees for technical services’ is the same as that provided in Explanation 2 to section 9 (1) (vi).
The person who is required to deduct TDS under section 194J shall deduct TDS either at the time of credit of sum to the account of the payee or at the time of payment in cash / cheque / draft or any other mode, whichever is earlier.
The Deductor is required to deduct TDS at the following prescribed rates under section 194J of the Income Tax Act, 1961 –
Particulars | Rate of TDS |
Cases, wherein, the payee is engaged in the business of the operation of Call Centre only (effective from 1st June 2017) | 2% |
In case of fees for technical services (not being a professional royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic film) (effective from 1st April 2020) | 2% |
Professional royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic film | 10% |
In case of fees for any other professional services | 10% |
In case the payee fails to furnish PAN | 20% |
TDS is not deductible in case the payment doesn’t exceed the prescribed threshold exemption limit. No TDS is to be deducted if the aggregate amount credited / paid during the financial year doesn’t exceed –
1. INR 30,000 in case of fees for professional services.
2. INR 30,000 in case of fees for technical services.
3. INR 30,000 in case of royalty.
4. INR 30,000 in case of fees paid for not carrying out any activity in relation to any business or profession.
5. INR 30,000 in case of fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of alike nature
It should be noted that the threshold exemption limit is not available only in the case of remuneration / fees / commission paid to director of the company (excluding salary).
Ans: As per provisions of section 194J of the Income Tax Act, 1961 requires every person to deduct TDS @ 10% or 2% depending on case to case basis on the following payment made to a resident person –
Ans: If the TDS is deducted under section 194J and total net income of the year is below the taxable income, then the payee can claim for refund of TDS so deducted under section 194J by the filing of an income tax return.
Ans: Yes, TDS is applicable on legal charges if the aggregate amount exceeds INR 30,000 during the financial year.
Ans: TDS rates of 10% for consultancy are prescribed under section 194J of the Income Tax Act, 1961.
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