Section 194J of the Indian Income Tax Act

Section 194J

Section 194J of the Income Tax Act covers provisions relating to the deduction of TDS on any sum paid by way of;

Section 194J of the Income Tax Act

  • Fee for professional services
  • Fee for technical services
  • Royalty
  • Remuneration/fee/commission to a director
  • For not carrying out any activity concerning any business
  • For not sharing any know-how, patent, copyright, etc.

Under this Section 194J, any person (other than individual or HUF who is not liable to audit U/S 44AB) who is liable for paying any of the above sums to a resident; shall deduct TDS at 10% without any surcharge, education cess or SHEC cess; provided the amount paid/credited exceeds Rs. 30000. Threshold limit is applicable to each payment separately. If the recipient of income doesn’t furnish PAN, the deductor must deduct TDS at 20%.

The deductor must deduct TDS at the time of credit of such income to the account of the payee; or at the time payment in cash or by cheque, whichever is earlier. The person deducting TDS shall issue tax credit certificate in Form 16A indicating the amount paid and the TDS deducted thereon. A person who has received the payment can claim the credit of TDS deducted at the time of filing of Income Tax Return.

Note: With effect from 1st June 2017 TDS shall be deducted at the rate of 2%; if the payee is engaged only in the business of operation of the call center.

However, if an individual or HUF make the payment for personal purposes, then the deductor must not deduct TDS. An assessee can also apply to an assessing officer for no TDS or TDS at lower rate U/S 197. If the total income of such person justifies the deduction at any lower rate or no deduction; the AO shall give him such certificate on application, which that person makes in this behalf.

Professional services refer to the services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the board for the purposes of section 44AA or of this section.

Fees for technical services mean any consideration for rendering services of managerial, technical, consultancy nature excluding consideration for any construction, assembly, and mining or like project undertaken by the receiver or consideration which would be income of the recipient chargeable under the head salaries.

Where any sum credited to any account, whether called ‘suspense account’ or by any other name, in the books of the person liable to pay such sum; such crediting shall be deemed to be the credit of such sum to the account of the payee; and the provisions of this section shall apply accordingly.

A company shall deduct TDS at the rate of 10% in respect of remuneration or fees or commission by whatever name called, it pay to a director which is not in the nature of salary and the company will consider the payment as fees for professional or technical services. Even if the payment is less than Rs. 30000; a company must deduct TDS as no threshold limit is applicable to this.

If the amount of service tax is shown separately on the invoice or agreement/contract; then the deductor must deduct tax from the amount paid; without including GST component.

Application of Section 194J

This section is also applicable to the following cases:

  • Payment to hospitals for rendering medical services
  • Advertising agencies making payment to film artist towards professional fee
  • Payment to share registrars by companies
  • Payment to HR consultancy or recruitment agencies

Time limit to deposit TDS

  1. If made by the government or on behalf of the government, they must deposit on the same day.
  2. In other cases, a deductor can deposit TDS within one week from the end of the month in which he deducted the TDS.
  3. For the month of March, time limit is on or before 30th April.
  4. If the payee make the payment on the last day of FY, then the depositor must deposit TDS within two months from the end of that FY.

In case of failure of deduction of TDS on time, interest will be levied at 1% per month or part of a month and in case of delay in payment, interest at 1.5% per month will be levied.

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