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Section 194J-TDS on Professional or Technical Fees
Check the applicability, exemption limits, rate, example, definitions, consequences on non-compliance for the FY 2022-2023(AY 2023-24)
Section 194J under the income tax covers TDS deduction on fees for professional or technical services. This section covers doctors, accountants, engineers, interior designers, architects and also people associated with advertising field. In this guide we will explain you all the provisions related to section 194J under income tax act.
What is section 194J under the Income Tax Act?
Section 194J is a provision under the Income Tax Act of India that deals with the tax deduction at source (TDS) on fees for professional or technical services. It requires the person making the payment to deduct a certain percentage of tax before making the payment to the recipient.
According to Section 194J, any person (other than an individual or a Hindu Undivided Family) making payment to a resident for professional or technical services is required to deduct TDS at the rate of 10% or 2% as applicable of the amount paid or credited to the recipient. Also if the payee does not provide PAN to deductor TDS will be deducted at rate of 20%.
Individual or a Hindu undivided family, whose total sales or turnover from the business or profession exceed the threshold limits specified under section 44AB during the immediately preceding financial year in which fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section
In the case of fees for technical services provided by a person who is not resident in India, the TDS rate is generally higher at 20% and Section 195 covers such payments.
The term "professional services" typically refers to services provided by professionals like lawyers, doctors, accountants, engineers, architects, etc. "Technical services" usually encompass services related to the development, use, or transfer of technical knowledge or information.
The person making the payment is responsible for deducting the TDS and depositing it to the government within the specified time frame. The deducted TDS is then credited to the recipient's income tax account, and the recipient can claim credit for the TDS while filing their income tax return.
Who is required to deduct TDS u/s 194J?
As per this section, any person (other than an individual or HUF who are not covered u\s 44AB in the preceding FY) who pays fees to resident for professional or technical services, will be required to deduct tax at source u/s 194J.
However, individuals or HUFs will be required to deduct TDS if they are liable to audit u/s 44AB (a) and (b).
The person here means :
- Central or State Government
- Local Authority
- Cooperative Society
- Registered Society
- Individual/HUF/AOP/BOI must get accounts audited u/s 44AB (a) and (b)
Which services are covered under section 194J?
The following type of services are covered under section 194J:
- Fees for professional service
- Fees for technical service
- Remuneration or fee or commission to a director of a company (which is not liable to TDS u/s 192).
Payment received (in cash or kind) under an agreement for:
-: Not carrying out any activity in relation to any business, or
-: Not sharing any know-how, patent, copyright, trademark, license, franchise or any other business/ commercial right of similar nature/ information/ technique.
What is the meaning of professional service & technical services?
Professional services under section 194J means
- Legal Services
- Medical Services
- Engineering Services
- Architectural Services
- Accountancy or Technical Consultancy Services
- Interior Decoration Services
- Advertising Services
- Notified Professions (which are related to sports activities; sportspersons, umpires, referees, coaches, trainers, team physicians, physiotherapists, event managers, commentators, anchors, sports columnists)
Technical services under section 194J means
Any consideration (including any lump sum consi-deration) for the rendering of any
ii) Technical or
iii) Consultancy services (including the provision of services of technical or other personnel)
but does not include consideration for any
iii) Mining or
iv) like a project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".
What is the limit to deduct TDS u/s 194J?
TDS is required to be deducted if the amount of payment in a year exceeds Rs. 30,000/-.
Now a question may arise in your mind whether this threshold limit is the overall limit for all services covered u/s 194J or it shall be calculated individually for payment of professional fees or technical fees etc?
This limit of Rs. 30,000/- is not a total limit for all services. It shall be calculated individually for payment as professional fees, technical fees, royalty fees, or non-competence fees.
Example 194J applicability: XYZ Ltd made the Following payments to Mr. A
|Payment made for professional services||Rs. 25,000|
|Payment made for technical services||Rs. 20,000|
|Total payment to Mr. A||Rs. 45,000|
|TDS is not required to be deducted in the above case|
XYZ Ltd is not liable to deduct TDS from payments made to Mr.A Since INR 30,000 is a separate limit for professional services and fees for technical services etc.
What is the rate & time of tax deduction u/s 194J?
The rate of tax deduction u/s 194J is
- (a) 2% in case of fees for technical services (not being professional services) or royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films
- (b) 10% in other cases (professional services)
- (c) However, in case of a payee, engaged only in the business of operation of call center, the tax shall be deducted at source at 2%.
And the time of deduction is earlier of,
- The credit of income to the account of the payee (receiver) (entry in books of accounts) or
- Actual payment (in cash, cheque, draft or other modes).
|Particular||Rate of TDS (if PAN available)||Rate of TDS (if PAN not available)|
|Payment given to resident person||10%||20%|
|Payment given to the business of running only call center||2%||20%|
When is Section 194J under Income Tax Act not applicable?
These are the exceptions to Section 194J applicability:
- Where the payment made by an individual or HUF is for personal purposes only.
- If payment is made to a non-resident contractor or sub-contractor.
- Where the amount of payment (at one time or in total during the whole financial year) does not exceed Rs. 30000.
- No TDS by individual\HUF on royalty and non compete fees( even if commercial).
Some Special Considerations by CBDT(Government) Circular on 194J Applicability
CBDT has made some special announcements relating to the implications of section 194J, which are as follows:
Routine maintenance contracts
Any payment made for routine maintenance contracts (including the supply of spares) will be liable to TDS u/s 194C. But if such payment is made for giving any technical services, then Section 194J will become applicable.
Any payment made to recruitment agencies (like Monster India or Naukri.com, etc.) will be subject to TDS u/s 194J.
TDS Deduction on GST Amount
The TDS under this section will be applicable to the amount (excluding GST) only if the GST value is shown separately on the bill.
Any payment (in the form of commission) paid by a media house (like TimesNow) to any advertising agency (like FoxyMoron) will be liable to TDS u/s 194J.
What is the time limit to deposit TDS u/s 194J?
Given below are the time limit to deposit the TDS with the government:
|Particular||Time limit to deposit TDS|
|If the amount is paid or credited in the month of March||On or before 30th April|
|If the amount is paid or credited in the month other than March||Within 7 days from the end of the month is which deduction is made|
What is the time limit to file TDS return u/s 194J?
After depositing TDS to the government, quarterly TDS return in form 26Q is also required to be filed. Given below are the due dates:
|April - June||31st July|
|July - September||31st October|
|January - March||31st May|
When is the TDS Statement issued and by whom u/s 194J?
TDS statement, known as Form 16A is issued by the specified person who is required to deduct TDS. Form 16A is issued to the deductee (i.e., whose TDS is deducted from the income). Given below are the due dates of issuing the TDS certificate:
|April- June||15th Aug|
|July - September||15th November|
|October - December||15th February|
|January - March||15th June|
Examples of TDS on professional and technical services
- Consultancy fees: When a company or individual pays a consultant for providing professional advice or services, TDS is applicable. For example, a marketing consultant, legal consultant, or financial consultant may receive payments that are subject to TDS.
- Legal fees: Any payment made to lawyers or law firms for legal services provided is subject to TDS. This includes fees for legal advice, drafting agreements, representing in court, etc.
- Technical services: Payments made to engineers, architects, IT professionals, or any other technical service providers for their expertise are subject to TDS. For instance, a software developer hired for a specific project would have TDS applicable to their payments.
- Royalty payments: Royalty payments made for the use of intellectual property, such as patents, copyrights, or trademarks, are subject to TDS. This includes payments to authors, musicians, artists, and other creators for the use of their work.
- Commission payments: TDS is applicable on commission payments made to agents or brokers for their services. For instance, a sales agent working on a commission basis would have TDS applied to their commission earnings.
- Professional fees: Payments made to professionals like doctors, accountants, engineers, or chartered accountants for their services are subject to TDS.
- Technical testing and analysis services: Payments made to laboratories or experts for conducting technical testing and analysis services may attract TDS.
You now know the basics of TDS on professional and technical services, including the deduction limits, rates, and timings. But tax computation can still be a challenge for a non-finance person. Why not hire an eCA to handle it for you?
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Frequently Asked Questions
Q- If a contract basis employee deducted TDS under 194J, can he/she claim a refund of the TDS amount deducted while filing ITR? Which ITR form he/she should fill out for that?
Yes, TDS deducted can be claimed as a refund after considering all his income. ITR Form 3 or 4 can be filed accordingly.
Q- Which ITR form should I fill if my income is both under Sections 192 and 194J? Income under these sections is in different time frames.
ITR Form 4 can be used if the 194J receipt is less than Rs. 50 lakhs otherwise ITR 3.
Q- Does the salary received by faculty (on contract) come under 194J?
It mainly depends on whether there is an employer-employee relationship exists or not. If no empoyer-employee relationship is there and TDS deducted under 194J, it can be treated as professional services.
Q- How much will the TDS company deduct if I do multiple short assignments as a consultant (say a week-long assignment comes to 12000 INR and another to 8000 INR)?
It would be covered under 194J if the assignment bill exceeds Rs. 30000/- p.a.but in the above case, the total is only Rs. 20000/-, so there is no TDS liability.
Q- Is it compulsory to mention assets like property, FDs, etc, while filing ITRs, especially when TDS is deducted under the 194J section?
No, it’s not compulsory to mention assets while filing ITR if the total taxable income is below a certain specified limit.
Q- How do I know that TDS deducted from my freelancing payment is deposited to income tax department?
It can be checked by logging in to Traces and Viewing your 26AS. You can also check your AIS and TIS.
Q- Which ITR should I file when a TDS was made under Section 194J instead of 192?
ITR 3 or 4 is appropriate for 194J related to professional and technical.
Q- Which ITR should I file for 194J for a salaried employee? Where should it be shown in the ITR return?
194J is the section for professional services and it is type of business, therefore ITR 4 can be filed if no books are maintained by client and minimum 50% income needs to be declared.
Q- Does Stipend come under Professional Tax 194J?
No, the stipend does not come under professional tax. It may come under 192, subject to few conditions.
Q- What is Section 28(VA)?
Section 28(va) includes money received (in cash or kind) under an agreement for
Not carrying out any activity about any business, or
Not sharing any know-how, patent, copyright, trademark, license, franchise, or any other business/ commercial right of similar nature/ information/ technique.