Now a days, a business organization, whether small or big, is more likely to be engaged in making payments towards professional or technical services. Hence, it is important to understand the TDS provisions attached to the same.
The present article briefly deals with the provisions of TDS for Professional or Technical services as covered under section 194J of the Income Tax Act.
Understanding some of the important relevant terms –
Before going through the provisions of section 194J of the Income Tax Act, it is important to understand the following important relevant terms –
- Professional services;
- Fees for technical services;
- Royalty; and
- Non-compete fees.
All the above terms are briefly explained in the table below –
|
Terms |
Explanation thereof |
| Professional services [defined under explanation (a) to section 194J] | Professional service means services provided by a person carrying on professions like –
|
| Fees for technical services [defined under explanation (b) to section 194J] | Fees for technical services means any consideration for rendering –
However, fees for technical services doesn’t include consideration for any –
|
| Royalty [defined under explanation (ba) to section 194J] | Royalty means consideration for –
|
| Non-compete fees [provisions covered under section 28(va) of the Income Tax Act] | Any sum paid/ payable whether in cash or kind for any of the following –
|
Payments covered under section 194J of the Income Tax Act –
TDS is liable to be deducted under section 194J on the following types of payments –
1. Fees for professional services;
2. Fees for technical services;
3. Royalty;
4. Remuneration/ fees/ commission paid to directors (excluding salary deductible under section 192);
5. Sum referred to in section 28(va) i.e. non-compete fees/ fees paid for not sharing any technical knowledge/ know-how.
Page Contents
- Category of the person liable to deduct TDS under section 194J of the Income Tax Act –
- Time of deduction of tax under section 194J of the Income Tax Act –
- Rate of deduction of tax under section 194J of the Income Tax Act –
- Circumstances when deduction of tax is exempt under section 194J of Income Tax Act –
- Consequence of non-deduction / late deduction of TDS under section 194J of Income Tax Act –
- Frequently Asked Questions (FAQs) on Section 194J
Category of the person liable to deduct TDS under section 194J of the Income Tax Act –
Each and every person making the above types of payments [i.e. fees for professional services; fees for technical services; royalty; remuneration/ fee/ commission paid to directors/ non-compete fees] to a resident is liable to deduct TDS u/s. 194J.
However, importantly, in the case of individual/ HUF, the applicability of TDS provisions is explained hereunder –
|
Particulars |
Applicability/ exemption of provisions of section 194J |
| Individual/ HUF liable to deduct TDS u/s 194J |
|
| Individual/ HUF exempt to deduct TDS u/s. 194J |
|
Time of deduction of tax under section 194J of the Income Tax Act –
Every person making a payment towards fees for professional or technical services is liable to deduct TDS within earlier of the following dates –
- Date of credit of the amount to the account of the payee; or
- Date of payment either via cash or cheque or draft or any other mode.
Rate of deduction of tax under section 194J of the Income Tax Act –
TDS is deductible at the following rates under section 194J –
|
Type of payments |
Rate at which TDS deductible u/s 194J |
|
2% |
| Any other case | 10% |
Notably, TDS will be deductible @ 20% in case the payee fails to furnish Permanent Account Number (PAN).
Circumstances when deduction of tax is exempt under section 194J of Income Tax Act –
Provisions of section 194J of the Income Tax Act don’t apply to –
1. The amount/ aggregate amount credited/ paid during the financial year to the payee doesn’t exceed INR 30,000.
2. Individual/ HUF carrying on business/ profession having turnover/ total sales/ gross receipts less than INR 1 Crore (in case of a business) and INR 50 Lakhs (in case of profession) during the preceding Financial Year.
Consequence of non-deduction / late deduction of TDS under section 194J of Income Tax Act –
The defaulter who defaulted in deduction of TDS under section 194J will have to face the following consequences –
1. Disallowance of expenditure –
The defaulter who defaulted in a timely deduction of TDS u/s 194J will be disallowed 30% of the expenditure in the year in which the respective expenditure is claimed.
2. Payment of interest –
The defaulter will be liable to pay interest in the following manner –
|
Particulars |
Rate of interest |
| Cases, wherein, no deduction of tax has been made u/s 194J | 1% per month or part thereof from the date on which TDS was required to be deducted till the date of deduction. |
| Cases, wherein, TDS has been deducted but the same is not paid to the government | 1.5% per month or part thereof from the date on which TDS was deducted till the date of payment. |
Frequently Asked Questions (FAQs) on Section 194J
Some of the important Frequently Asked Questions relating to provisions of section 194J of the Income Tax Act are highlighted hereunder –
Q.1 What is 194J in income tax?
Ans. Section 194J of the Income Tax Act covers provisions relating to the deduction of TDS in case of payments relating to fees for professional or technical services.
Q.2 What is 194J limit?
Ans. The limit prescribed under section 194J is amounts/ aggregate of amounts up to INR 30,000 i.e. up to the payment limit of INR 30,000 TDS is not required to be deducted u/s 194J.
Q.3 What is TDS rate for technical services?
Ans. The TDS rate for technical services as per section 194J is 2%. Whereas, the TDS rate for professional services as per section 194J is 10%.
Q.4 Who is liable to deduct TDS under 194J?
Ans. Every person making a payment towards fees for professional or technical services is liable to deduct TDS under 194J.
However, 194J doesn’t apply to individual or HUF who are engaged in carrying on business/ profession and is having turnover/ total sales/ gross receipts less than INR 1 Crore (in case of a business) and INR 50 Lakhs (in case of a profession) during the preceding Financial Year.
Q.5 Which services come under 194J?
Ans. The following types of payments are covered under section 194J of the Income Tax Act –
- Fees for professional services;
- Fees for technical services;
- Royalty;
- Remuneration/ fees/ commission paid to directors; and
- Sum referred to in section 28(va) i.e. non-compete fees or fees paid for not sharing any technical knowledge/ know-how.
Q.6 What is threshold limit for TDS under section 194J?
Ans. The threshold limit as prescribed under section 194J of the Income Tax Act is INR 30,000.
Q.7 Who comes under 194J?
Ans. As per section 194J every person who is paying fees to a resident for professional or technical services is covered under section 194J.
Q.8 Is GST applicable on 194J?
Ans. With respect to GST applicability on TDS, it is clarified that if GST has been indicated separately then TDS is not required to be deducted on the GST component.
Q.9 Under what circumstances TDS u/s 194J is not deductible?
Ans. Under the following two circumstances TDS u/s 194J is not deductible –
- When the amount/ aggregate amount payable to the payee doesn’t exceed INR 30,000 during the Financial Year; or
- When an individual / HUF carrying on the business/ profession is having turnover below INR 1 Crore (business) or INR 50 Lakhs (profession) in preceding the Financial Year.
Q.10 What is interest on TDS late payment?
Ans. Interest on TDS late payment is 1% if the TDS is not deducted at all and 1.5% in case the TDS is deducted but not paid to the Government.
Author Bio
Lets say, I am individual who is not registered for GST. I am a finance profession and working for XYZ ltd. If I provide my service to someone else lets say ABC ltd who is also finance consultant and agree to recieve comission of 50% of the total engagement value, lets say total value is INR 10 Lakh, then as per above laws, TDS of 10% will be applicable. Though, I want to check, if ABC LTD will also need to charge 18% GST on this commision or not ? if yes, why ?