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Section 194J under the income tax covers professional fees TDS or technical fees services. Section 194J covers doctors, accountants, engineers, interior designers, architects, and also people associated with the advertising field. In this guide, we will explain to you all the provisions related to section 194j of Income Tax Act.
Section 194J of Income Tax Act deals with the tax deduction at source (TDS) on professional fees 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 of Income Tax Act, 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 the deductor, TDS will be deducted at the rate of 20%.
Individuals 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 are credited or paid shall be liable to deduct income-tax under this section.
Regarding fees for technical services provided by a person not resident in India, the TDS rate is generally higher at 20%, and Section 195 covers such payments.
"Professional services" refer to services provided by professionals like lawyers, doctors, accountants, engineers, architects, etc. "Technical services" usually encompass services related to developing, using, or transferring 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.
As per Section 194J, 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 :
The following types of services are covered under section 194J:
Any consideration (including any lump sum consideration) for the rendering of any
i) Managerial
ii) Technical or
iii) Consultancy services (including the provision of services of technical or other personnel)
but does not include consideration for any
i) Construction
ii) Assembly
iii) Mining or
iv) like a project undertaken by the recipient or consideration which would be the income of the recipient chargeable under the head "Salaries."
TDS must be deducted if the payment amount 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
| Particulars | Amount |
|---|---|
| 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.
The rate of tax deduction u/s 194j of Income Tax Act is
And the time of deduction is earlier than,
- 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% |
These are the exceptions to Section 194J applicability:
CBDT has made some special announcements relating to the implications of section 194J, which are as follows:
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 of Income Tax Act.
The TDS under this section will only apply to the amount (excluding GST) 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.
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 |
After depositing TDS to the government, quarterly TDS return in form 26Q is also required to be filed. Given below are the due dates:
| Particulars | Due Date |
|---|---|
| April - June | 31st July |
| July - September | 31st October |
| October-December | 31st January |
| January - March | 31st May |
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:
| Particulars | Due Date |
|---|---|
| April- June | 15th Aug |
| July - September | 15th November |
| October - December | 15th February |
| January - March | 15th June |
The employer or the person liable to deduct TDS fails to deduct the TDS or fails to deposit it with the government, may be subject to interest and penalty imposed by the Income Tax authorities.
Non-deductible payments: According to Section 40(a)(ia) of the Income Tax Act, any amount (except salary) paid outside India or to a non-resident, which is taxable in India in the hands of the receiver, shall not be deducted if it is paid without withholding tax or if tax is withheld but is not remitted to the Central Government till the deadline of filing of return.
However, if tax is withheld or remitted in the next year, as the case may be, the payment shall be deducted in that year.
Moreover, according to Section 40(a)(ia), any amount paid to a resident, which is subject to withholding tax, would attract 30% non-deductibility if it is paid without withholding tax or if tax is withheld but is not remitted to the Central Government till the deadline of filing of return.
Any individual who is liable to deduct TDS but fails to deduct it wholly or partly, or does not pay it to the government, will be subject to pay interest. The interest rate is:
The assessee has to pay this interest before furnishing the TDS statement.
If the assessee is liable to deduct or pay TDS and does not deduct (under sections 192 to 196D) or deposit as per Chapter Section 115-O(2), or the second proviso to Section 194B, the deductor may face a penalty U/S 271C of the Income Tax Act. The penalty amount can be equal to the TDS he failed to deduct or deposit.
If the assessee does not pay the tax demand raised by the assessing officer, the assessee may face another penalty under Section 221 of the Act. The penalty amount can vary depending on how long the payment is delayed; however, the penalty amount can not exceed the tax demand.
If a person deducts the tax at source and is liable to deposit to the government and fails to do so, he can be sentenced to imprisonment of a minimum of 3 months, and the sentence can be extended to a maximum of 7 years. Read more here.
Book an eCA for professional advice before submitting a TDS return.
You now know the basics of TDS on professional fees 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? Book eCA now and experience a smooth and easy efiling of ITR.
Yes, TDS deducted can be claimed as a refund after considering all his income. ITR Form 3 or 4 can be filed accordingly.
ITR Form 4 can be used if the 194J receipt is less than Rs. 50 lakhs otherwise ITR 3.
It mainly depends on whether an employer-employee relationship exists or not. If no employer-employee relationship is there and TDS deducted under 194J, it can be treated as professional services.
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.
No, it’s not compulsory to mention assets while filing ITR if the total taxable income is below a certain specified limit.
It can be checked by logging in to Traces and Viewing your 26AS. You can also check your AIS and TIS.
ITR 3 or 4 is appropriate for 194J related to professional and technical.
194J is the section for professional services, and it is a type of business; therefore, ITR 4 can be filed if no books are maintained by the client and a minimum of 50% income needs to be declared.
No, the stipend does not come under professional tax. It may come under 192, subject to a few conditions.
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.
