Section 194J: TDS On Fees For Professional Or Technical Services, TDS Rate, Due Dates And How To Lower TDS
According to Section 194J of the Income Tax Act, TDS (Tax Deducted at Source) is deducted against fees paid for professional or technical services. TDS is also deducted for paying Royalty and commission/remuneration to Directors under Section 194J.
This article gives you all the details – when TDS should be deducted as per Section 194J, TDS rate, TDS limit, due date, how to reduce TDS and how to file for Income Tax Return (ITR). Read on!
Purpose of Section 194J of the Income Tax Act
Tax Deducted at Source or TDS has made tax collection much easier. In a business, most of the fees are paid towards professional or technical services. Such payments are made to the residents covered under Section 194J of Income Tax.
If you run a business organisation, you are required to pay certain fees for technical or professional services. Professional fees include payments to doctors, lawyers, decorators, architects and others. Technical fees include payments for different consultancy or technical services.
Different Payments that are Covered Under Section 194J
Here are the different types of payments made to residents that are covered under Section 194J of the IT Act:
Technical services
Technical services refer to managerial, consultancy or other technical services. However, these services will not include mining, construction or assembly.
Professional services
Professional services usually include the following:
- Services provided by individuals belonging to medical, legal, architectural or engineering profession
- Services offered by sportspersons, commentators, event managers, umpires, team physicians, referees and others are also included under it
- Other services included are those provided by film artists, secretaries or authorised representatives
Royalty
Royalty under this section will include consideration for:
- Transfer of rights for a design, trademark, invention or formula.
- Transferring rights related to films, videotapes, literary works, scientific findings
- Use of a patent, model or invention and more
Non-compete fees
Payments with regard to non-compete fees also come under the ambit of Section 194J of the income tax act. A non-compete fee is an amount paid to another person or entity under an agreement, thereby restricting the other person/entity from competing in a similar trade or area of profession.
In addition, Section 194J TDS deduction is applicable for other specific cases, such as the following:
- Remuneration paid to HR consultancy firms or recruitment agencies
- Fees paid by advertising agencies to film stars.
- Amount paid to share registers by various companies
- Medical services provided by hospitals
TDS Rate under Section 194J
If a person makes a payment for any professional or technical services, Then they are entitled to TDS under section 194J of the income tax act. Any transaction below INR 30,000 is not subjected to a tax deduction but transactions exceeding INR 30,000 in a year are subjected to a 10% TDS deduction.
Also Read: Income Tax Slabs And Rates
Tax Deduction Threshold Limit under Section 194J
Following are the limits for tax deductions made under Section 194J:
- Only the payments made of more than Rs. 30,000 for technical and professional services are eligible for deduction. This deduction for independent payments made for each service
- There is no limit for payments made to the director/s of a company. TDS will be deducted regardless of the amount
Illustration of TDS Payment Threshold under Section 194J
Mr. Roy has received Rs. 25,000 for technical services and Rs. 15,000 for professional services. The total payment made to him is Rs. 40,000 which exceeds the taxable amount limit of Rs. 30,000. But there will be no tax deduction at source as each payment made to him doesn’t exceed the limit of Rs. 30,000.
Who is Liable to Deduct TDS under Section 194J of the Income Tax Act?
Persons who are making a payment for technical, professional, or other specific services mentioned in the section are liable to deduct TDS.
Notably, persons here would signify the following:
- Government
- Corporation
- Local authority
- University
- Trust
- Firm
- Registered authorities
- Cooperative society
HUFs and Individuals have to make TDS deductions if they are liable for audits under Section 44AB (a) and (b).
Time Limit for Depositing TDS
These are some of the crucial guidelines that you need to follow while paying TDS under Section 194J:
- You are required to make TDS deposits on the same day if the TDS deduction under this section is made either by the government or on its behalf.
- However, for other cases, you have to submit the TDS within one week of the month-end in which the TDS deduction was made.
- TDS deduction, in some exceptional cases, can take place every quarter. However, an Assessing Officer has to approve it.
- If the payment of a service is made on the very last day of a fiscal year, you have to make the deposit within two months of the year-end.
Dates for Government and Non – Government deductor
Payments made before 1st March
For payments made before the 1st of March, both government and non-government deductors charge it on the 7th day from the end of the month.
Payments made in the month of March
For payments made in the month of March, the Non-government deductors charge it on April 30th. For government deductors, they charge the amount of tax on the date of the payment to the payee. The challan gets deposited by the 7th day from the end of
the month.
How to Lower TDS Rate under Section 194J?
The person receiving a payment can ask for a lower rate of TDS under Section 197. That individual has to fill out Form 13 and send it to the Assessing Officer for approval.
Section 194J TDS Amendments
Following amendments have been made to Section 194J according to the Finance Bill, 2020:
- TDS will be deducted at 2% rate for technical services and it can go up to 10% of the amount for any other services
- Only individuals or HUF with a total sale, gross receipt or turnover of Rs. 1 Crore in business and Rs. 50 lakh in case of a profession pursued by him/her in the previous year are liable for TDS under Section 194J.
How To File for ITR under Section 194J
One must mention details such as TDS amount, TAN of the deductor while filing for Income Tax Return. These details are available in Form 26AS of the relevant Assessment Year. The total tax payable will be the self-assessment tax and the advance tax along with the TDS. The net amount is the tax liability of the assessee.
Consequences of Non-Deduction or Late Deduction
A part of the Payment is Disallowed
Taking the profit and loss account into consideration, a charge of 30% of the expenditure will be disallowed in the year of the expenditure claim. In the year in which TDS is paid back to the government, 30% will be reallowed.
Interest is Levied
If a person pays the tax late, then the tax payment happens along with the TDS paid to the government. If there was no tax deduction, one has to pay an interest of 1% per month from the date when it was required up to the date of actual deduction. In case the tax was already deducted but not paid to the government, the person is liable to pay 1.5 % interest per month from the date of deduction of the tax to the date of payment made to the government.
Also Read: Penalty And Interest For Late Payment of TDS
Final Word
If you are availing of any kind of services for your business, you should make sure to deduct TDS. Non-deduction of TDS within the stipulated time can lead to penalties. You can refer to the above sections to have a clear idea regarding Section 194J.
Frequently Asked Questions
Ans: You can apply for a reduction in the rate of TDS by filling up Form 13 and sending it to an assessing officer. If the officer approves of this reduction, you will receive a certificate confirming the lowering of the TDS amount.
Ans: Section 194J is not applicable under the following cases:
The payment is made by an individual or an HUF for private purposes
The payment is made to subcontractors or non-resident contractors
The amount of payment does not exceed Rs. 30,000
Ans: Non-deduction of tax or late deduction can attract the following penalties:
30% of expenditure will not be allowed while calculating loss or profit in the year when the expenditure is claimed
An interest of 1% per month is levied from the date on which the deduction of TDS was to take place to the date of actual deduction.
Ans: Yes, you can claim the TDS deducted under Section 194J while filing an income tax return. You need to mention details about TDS, TAN of the individual/entity deducting the amount and other details.
Ans: You can easily verify all details regarding the tax deducted under Section 194J via Form 16, which you can collect from the deducting entity. Alternatively, you can verify the details via Form 26AS from the official website of the Income Tax Department.
Ans: According to Section 194J(1)(ba), any fees or commission or remuneration paid to a director of a company will be liable for TDS other than those mentioned under Section 192.
Ans: A penalty of Rs. 10,000 which can go up to Rs. 1,00,000 will be charged as penalty from the companies for late filing of returns or providing incorrect information by the due date. This penalty will be charged in addition to the penalty under Section 234E.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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