Section 194J – TDS on Fees for Professional or Technical Services

Section 194J – TDS on Fees for Professional or Technical Services

Section 194J – TDS on Fees for Professional or Technical Services One of the most important and common types of payments that a business entity makes is towards professional fees or fees for technical services. Some examples of professional fees are fees paid to a lawyer, doctor, engineer, architect, chartered accountant, interior decorator, advertisers, etc. Technical services would include the rendering of managerial, technical or consultancy services. Such payments made to residents are covered under section 194J.

Who is required to deduct TDS u/s 194J?

As per Section 194J, section, any person (other than an individual or HUF who is not covered u\s 44AB in the preceding FY) who pays fees to residents 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 :

1. Central or State Government
2. Local Authority
3. Corporation
4. Company
5. Cooperative Society
6. Trust
7. University
8. Registered Society
9. Firm
10. Individual/HUF/AOP/BOI must get accounts audited u/s 44AB (a) and (b)

Payments Covered

The types of payments to residents covered under this section are as follows:

• Fees for Professional fees
• Fees for technical services
• Remuneration or fees or commission paid to directors excluding salary (Example: sitting fees to attend board meetings)
• Royalty Section 194J – TDS on Fees for Professional or Technical Services
• Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business or profession for a specified time and within certain geographical boundaries) or fees paid not to share any technical knowledge or know-how. Section 194J – TDS on Fees for Professional or Technical Services

Meaning Of Various Terms

Professional Services

Section 194J – Fees for Professional or Technical Services It implies the services provided by a person to carry on medical, legal, architectural, or engineering professions. Section 194J – TDS on Fees for Professional or Technical Services It also includes accountancy, advertising, interior decoration, technical consultancy or any other profession notified by the CBDT Board under Section 44AA.

Section 194J – Fees for Professional or Technical Services CBDT has notified the profession of a film artist, company secretary, Section 194J – TDS on Fees for Professional or Technical Services authorised representatives and the profession of information technology under Section 44AA to date.

CBDT has further notified sportspersons, commentators, event managers, anchors, umpires and referees, physiotherapists, coaches and trainers, team physicians, and sports columnists under Section 194J.

Professional services under section 194J means

• Legal Services
• Medical Services
• Engineering Services
• Architectural Services
• Accountancy or Technical Consultancy Services
• Interior Decoration Services
• Advertising Services
• Notified Professions (which are related to sports activities: sportspersons, umpires, referees, coaches, trainers, team physicians, physiotherapists, event managers, commentators, anchors, and sports columnists)

https://incometaxindia.gov.in/Acts/Income-tax%20Act,%201961/2014/102120000000036681.htm

Technical Services

As per income tax rules, ‘fees for technical services’ means managerial, technical, and consultancy services but does not include payments considered as Salary by the recipient of such income.

• One can define technical services as providing services that involve technical expertise or expertise in technology. Section 194J – TDS on Fees for Professional or Technical Services
• The scope of managerial services can be defined as running and management of the business of the client.
• Consultancy services can be understood as advisory services wherein necessary advice and consultation are given to the clients for their business.

As per the Supreme Court’s judgment, technical service includes services provided by humans. It does not include services provided by machines or robots.

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.”

Royalty

Royalty means the payment made for:

• Transfer of rights or usage of an invention, model, design, trademark, patent, etc.
• Use of patents, inventions, designs, etc. Section 194J – Fees for Professional or Technical Services
• Provide any information related to using an invention, patent, formula, etc.
• Transfer of rights related to scientific findings, literary work, films or videotapes for radio broadcasting but does not include consideration for the sale, exhibition, or distribution of cinematographic films.
• Providing any information related to technical, industrial, commercial or scientific knowledge, experience or skill. Section 194J – TDS on Fees for Professional or Technical Services

Non-Compete Fees

Non-compete fees imply the payment made in cash or kind in return for an agreement that binds them from sharing any license, patent, trademark, franchise, know-how, commercial or business rights, or information likely to be utilized elsewhere for processing, manufacture, or any other provisional service.

Threshold Limit For Deducting Tax

• The tax has to be deducted in case the payment for professional and technical services is greater than Rs 30,000 during the year.
• Please note this Rs 30,000 maximum limit is applicable to each item or payment independently.
  • For example, TAXGYANY PRO PRIVATE LTD company paid Mr. Vijay Rs 20,000/—as royalty and Rs 15,000/—as fees for technical services. TAXGYANY PRO PRIVATE LTD company is not liable to deduct TDS from these payments. This is because Rs 30,000 is a separate limit for each item, i.e. royalty and fees for technical services. Section 194J – Fees for Professional or Technical Services
• However, there is no such limit for payments (commission, fees or remuneration) made to a director by the company. The tax will have to be deducted no matter how small the amount.

Persons Liable To Deduct Tax

Every person making a payment in the nature of fees for professional or technical services is liable to deduct tax at source. Section 194J – TDS on Fees for Professional or Technical Services  However, the below persons are not liable to deduct TDS on such payments:

• In case of an individual or HUF carrying on a business: Where turnover does not exceed Rs 1 crore during the previous financial year.
• In case of an individual or HUF carrying on profession: Where turnover does not exceed Rs 50 lakh during the previous financial year.

To put it simply, all entities (other than individuals/HUF who are not required to do a tax audit in the preceding year) need to deduct tax (TDS) while paying fees for professional or technical services

Rate Of Deduction Of Tax Under Section 194J

When is Section 194J under the Income Tax Act not applicable?

These are the exceptions to Section 194J applicability:

• Where the payment made by an individual or HUF is for personal purposes only.
• If payment is made to a non-resident contractor or sub-contractor. Section 194J – TDS on Fees for Professional or Technical Services Section 194J – TDS on Fees for Professional or Technical Services
• The payment amount (at one time or in total during the whole financial year) does not exceed Rs. 30000.Section 194J – TDS on Fees for Professional or Technical Services
• No TDS by individual\HUF on royalty and non-compete fees( even if commercial).

Time Of Tax Deduction Under Section 194J

The tax should be deducted at the time of-

• Passing such entry in the accounts or
• Making the actual payment of the expense, whichever is earlier.

Who Needs To Comply With Section 194J?

• All types of taxpayers, excluding individuals or HUF, need to comply with the provisions of section 194J. Section 194J – TDS on Fees for Professional or Technical Services
• Section 194J – TDS on Fees for Professional or Technical Services However, an individual or HUF whose total sales exceeds Rs.1 crore in case of business and Rs. 50 lakhs in case of profession in the financial year in which the fees for professional Section 194J – Fees for Professional or Technical Services services or fees for technical services are credited or paid is required to deduct tax on such fees. Section 194J – Fees for Professional or Technical Services
• Some Special Considerations by CBDT(Government) Circular on 194J Applicability
• CBDT has made some special announcements relating to the implications of section 194J, which are as follows:
• Routine maintenance contracts
• Any payment made for routine maintenance contracts (including the supply of spares) will be liable to TDS u/s 194C. Section Section 194J – TDS on Fees for Professional or Technical Services  But if such payment is made for giving any technical services, then Section 194J will become applicable.
• Recruitment agencies
• Any payment made to recruitment agencies (like Monster India or Naukri.com, etc.) will be subject to TDS u/s 194j of the Income Tax Act. Section 194J – TDS on Fees for Professional or Technical Services Section 194J – TDS on Fees for Professional or Technical Services
• TDS Deduction on GST Amount Section 194J – TDS on Fees for Professional or Technical Services
• The TDS under this section will only apply to the amount (excluding GST) if the GST value is shown separately on the bill. Section 194J – TDS on Fees for Professional or Technical Services
• Media House
• Any payment (in the form of commission) paid by a media house (zee, star) to any advertising agency will be liable to TDS u/s 194J.

Examples Of TDS On Professional And Technical Services

Example 1: Mr arjun has availed professional service from Mr Veeraj in F.Y. 2024-25. The first payment was in April 24 month of Rs 65,000, and the second payment was in October 24 month of Rs 30,000. Let us check the TDS liability for both the payments for the F.Y. 2024-25 in three scenarios:

1. Mr arjun is not liable for audit u/s 44AB.
2. Mr arjun is liable for audit u/s 44AB, and he has taken service for personal purposes.
3. A tax audit u/s 44AB applies to Mr. arjun in FY 2024-25, and he has used professional services for business purposes.

Analysis Of Situation 1
Since Mr arjun is not liable for Tax Audit u/s 44AB, he is not liable to deduct tax while making payment to Mr Veeraj.

Analysis Of Situation 2
Although Mr arjun has taken professional services, that was for personal purposes. Hence, no TDS is required to be deducted while making payments for such services.

Analysis Of Situation 3
Section 194J – Fees for Professional or Technical Services If a Tax Audit applies to Mr arjun and he avails professional services for business purposes, then TDS @ 10% must be deducted at Rs. 65,000 while making payment or crediting the accounts, whichever is earlier. Section 194J – TDS on Fees for Professional or Technical Services This is because the transaction has exceeded the threshold limit of Rs. 30,000.

Similarly, since the transaction amount exceeded the threshold limit in the financial year, TDS should be deducted for all the payments made to Mr. Veeraj Hence, tax shall also be deducted at source on the second payment of Rs. 35,000.

Example 2: A FOOTBALL Club has engaged Mr. Prem a resident of India, as its coach at a remuneration of Rs 20 lakh per annum. Whether the club liable to deduct TDS from such payment?

Services provided by coaches for sports activities are notified as professional services under section 194J. Section 194J – TDS on Fees for Professional or Technical Services The remuneration is more than Rs 30,000 per annum. Therefore, the football Club is liable to deduct TDS under section 194J from the remuneration payable to the Coach, Mr prem.

Consequences Of Non-Deduction Or Late Deduction Of TDS

Not deducting the tax or late deduction of the tax has a two-fold consequence:

• Disallowance Of  Part Of The Expenditure: 30% of the expenditure shall be disallowed in the year in which the expenditure is claimed (taken to the profit and loss account) – however, the 30% disallowed shall be re-allowed in the year in which the TDS is paid to the government.
• Levy Of Interest Until Date Of Payment: In case there is a delay in the payment of tax, interest has to be paid along with the TDS to the Government. Section 194J – Fees for Professional or Technical Services The rate of interest is determined in the following manner:
  • Where no deduction of tax has been made: Section 194J – TDS on Fees for Professional or Technical Services  Interest shall be payable at 1% per month/part of month from the date on which such tax was required to be deducted up to the date of actual deduction. Section 194J – TDS on Fees for Professional or Technical Services Section 194J – TDS on Fees for Professional or Technical Services
  • Where tax has been deducted but not paid to the government: Interest shall be payable at 1.5% per month/part of month from the date on which such tax was deducted up to the date of payment to the government.

Time Limit For Deposit Of TDS 

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