What is Section 194J of Income Tax Act: TDS on Fees for Professional or Technical Services
Section 194J of the Income Tax Act focuses on provisions regarding TDS deduction by a payer while making payments to a resident individual for providing specified technical and professional services. This article contains essential information regarding this Section. Hence, individuals curious to know about it must keep reading!
Who Is Responsible for Deducting TDS as Per Section 194J?
A person, except Hindu Undivided Family and individuals, paying fees for receiving technical and professional services, is responsible for deducting TDS while making payments.
Persons here denote the following:
- Local authority
- Central or State Governments
- Corporation
- Cooperative Society
- University
- Trust
- Registered Society
- Firm
- Company
In case of a Hindu Undivided Family or an Individual, section 194J is applicable if following conditions are met:
If they carry a business where turnover or sales or gross receipts in the previous fiscal year is above ₹ 1 crore.
If they carry a profession where turnover or sales or gross receipts in the previous fiscal year is above ₹ 50 lakhs.
What Are the Payment Types Covered Under Section 194J?
The type of payments that Section 194J of the Income Tax Act covers are as follows:
- Fees for professional and technical services
- Remuneration, commission, or fees to directors of a company excluding any salary on which TDS under section 192 is deductible.
- Royalty
- Payments received in kind or cash under section 28(va) for –
- Not conducting any business activity
- Not sharing patent, know-how, copyright, licence, trademark or any other commercial right of similar type
What Does Professional & Technical Services Mean in Section 194J?
Professional and technical services under Section 194J denotes the following services:
- Professional Services Under Section 194J Means
- Medical
- Legal
- Architectural
- Engineering
- Technical consultancy services or accountancy
- Advertising
- Interior decoration
Notified Professions by CBDT in relation to sport activities: sports activities like referees, umpires, sportspersons, trainers, coaches, physiotherapists, team physicians, commentators, event managers, sports columnists, anchors.
Notified Professions that are also covered in section 44AA: authorised representative, film artist or company secretary or information technology
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2. “Fees for Technical Services” Under Section 194J Means
- Technical
- Managerial
- Consultancy (including technical or other personnel rendering services)
However, “fees for technical services” under Section 194J does not include the following:
- Assembly
- Construction
- Mining
- A project where an individual receiving income as salary
What Is the Threshold Limit to Deduct TDS Under Section 194J?
The threshold limit should be above ₹ 30,000 in a financial year for TDS to be deducted. Note that this payment limit for deducting TDS is computed individually under the heads: ‘technical’, ‘professional’, ‘non-competence’ and ‘royalty’ fees. For example-
Mr. Alok receives payment of ₹ 20,000 and ₹ 25,000 for providing professional and technical services, respectively, then the aggregate payment is as follows:
| Particulars | Amount |
|---|---|
| Payment received for providing professional services | ₹ 20,000 |
| Payment received for providing technical services | ₹ 25,000 |
| Aggregate payment made to Mr Alok | ₹ 45,000 |
In this case, the deductor will not deduct tax at source while making payments as each payment made for respective services does not exceed ₹ 30,000.
Additionally, note that there is no threshold limit for payment made to directors for TDS to be deducted from such payments.
Also, while calculating the limit of ₹ 30,000, aggregate of such payments in a financial year under each heading must be seen. For example -
Mr. A has provided ‘professional’ services to H Ltd. He raises two invoices of Rs 25,000 and Rs 7000. The aggregate amount is Rs 32,000 which exceeds the threshold limit. Hence, H Ltd has to deduct TDS on Rs 32,000.
What Is the TDS Rate as Per Section 194J?
Here is the rate at which a payer deducts TDS while making payments for technical and professional services under Section 194J:
| Particulars | TDS Rates |
|---|---|
| Royalty in nature of distributions, sales, and exhibitions of cinematographic films and fees for professional services | 10% |
| Fees paid for technical services and payee associated with the business of operating call centres | 2% |
| A payee who does not provide PAN | 20% |
When Is TDS Deducted According to Section 194J?
The time of deduction of TDS shall be earliest of the following times:
When the payment is due (credit)
or
- Actual payments in a cheque, draft, cash or other payment modes
When Is Section 194J of the Income Tax Act Not Applicable?
There are a few exceptional circumstances when Section 194J is not applicable:
- Hindu Undivided Families and individuals making payments to meet their personal purposes
- A payer pays to non-resident sub-contractor and contractor
- The single or total amount paid in a financial year is not above ₹ 30,000
What Is the Time Limit to Deposit TDS as Per Section 194J?
Deductor must deposit TDS within the following deadlines mentioned below:
Non-Government Taxpayers
| Particulars | Due Dates for TDS Payment |
|---|---|
| The amount is transferred or paid in March | On or before 30th April |
| The amount is credited or paid other than March | Within 7 days from the completion of the month in which the payer deducted TDS |
Government Taxpayers
| Particulars | Due Dates for TDS Payment |
|---|---|
| A deductor needs to deposit TDS without using challan | The same day on which TDS has been deducted |
| A payer needs to deposit TDS using challan | 7th day of the subsequent month |
In specific cases, a deductor can deduct TDS in a quarter of a financial year given the approval of an Assessing Officer.
What Are the Due Dates to File Tax Return as Per Section 194J?
A deductor, after depositing TDS, needs to fill Form 26Q for filing quarterly return of TDS within the following due dates:
| Particulars | Due Dates for TDS Return Filing |
|---|---|
| April to June | 31st July |
| July to September | 31st October |
| October to December | 31st January |
| January to March | 31st May |
When Does a Deductor Issue TDS Statement Under Section 194J?
A deductor issues Form 16A to the payee or deductee within the following due dates:
| Particulars | Dues Dates to Issue TDS Certificate |
|---|---|
| April -June | 15th August |
| July to September | 15th November |
| October to December | 15th February |
| January to March | 31st May |
Consequences of Late or Non-Deduction of TDS Under Section 194J
Individuals not deducting or delaying in deducting TDS from payments can face the following consequences:
1. Interest Till the Payment Date
In case of late TDS payment to the Government, deductors have to pay interests along with TDS. The interest rate is as follows:
Non-deduction of Tax - 1% of interest is chargeable every or part of the month. This is levied from the date on which TDS was to be deducted up to the actual date of deduction.
Non-payment of TDS to the Government - 1.5% of interest is chargeable every or part of the month. This is calculated from the date on which the deductor deducted TDS up to the payment date.
2. Disallowance on Expenses
In case of business or profession, if the entity doesn’t deduct TDS on those expenses on which it was required to deduct TDS, 30% of such business expenses are disallowed in the year in which such TDS was not deducted or paid within the due date of filing of Income Tax Return.
Such disallowed expenditure is allowed again the subsequent year as and when the TDS is deducted and paid.
Knowing about Section 194J of the Income Tax Act will assist taxpayers to deduct and deposit TDS within time to avoid paying additional interests and increase tax liabilities.
Frequently Asked Questions
Is TDS deduction applicable on the GST amount under Section 194J?
If the GST amount is separately mentioned in the bill, a deductor needs to deduct TDS on the amount excluding GST.