Section 194J Of Income Tax Act: TDS On Professional Fees and Technical Fees

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.

According to Section 194J of the income tax act, if a person pays a fee for availing certain services to a resident, they need to deduct TDS. The 194J TDS deduction should be 10% for payments that exceed Rs. 30,000 in a fiscal year.

Let’s find out more about it.

Also Read: How To Use Online Income Tax Calculator?

Payments 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

Also Read – Income Tax Slabs And Rates

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

Rate Of Deduction Of Tax 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 percent TDS deduction. 

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 behalf of it.
• 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. 

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 percent 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 levied

If a person pays the tax late, then the tax payment happens along with the TDS paid to the government. In case there was no tax deduction then, 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. 

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. 

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