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!
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.
Here are the different types of payments made to residents that are covered under Section 194J of the IT Act:
Technical services refer to managerial, consultancy or other technical services. However, these services will not include mining, construction or assembly.
Professional services usually include the following:
Royalty under this section will include consideration for:
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:
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
Following are the limits for tax deductions made 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.
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:
HUFs and Individuals have to make TDS deductions if they are liable for audits under Section 44AB (a) and (b).
These are some of the crucial guidelines that you need to follow while paying TDS under Section 194J:
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 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.
Following amendments have been made to Section 194J according to the Finance Bill, 2020:
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.
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
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.
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.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
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.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
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