What is Section 194J of Income Tax Act?
When it comes to the collection of taxes in the nation, the deduction of 194J TDS or tax at source is very beneficial while focusing on the source of income itself. In addition, it streamlines the burden of paying tax of the taxpayer when it is about to file their income tax returns. It is because they receive credit for the taxes deducted at the source. One of the most common and crucial kinds of payments that are made by a business organization is fees for technical services or professional fees. Few of the instances of professional fees include fees paid to architects, lawyers, chartered accountants, engineers, advertisers, interior decorators, doctors, etc. If we talk about technical services, it comprises the providing of consultancy, technical, or managerial services. These payments that are made to residents are included under section 194J.
Various payments made to residents covered under this section are given below:
- Fees for technical services
- Professional fees
- Payments in the form of non-complete fees (fees paid to not share any technical know-how or knowledge) or (fees paid to not undertake any profession or business for a certain period of time and within specific geographical boundaries).
- The remuneration paid to directors excluding salary (for example, sitting fees to appear for board meetings).
194J TDS Rate
If we talk about the TDS rate of 194J, the analysis of section 194J of income tax act, 1961 goes like this:
Except for a HUF or an individual, every person who is liable to pay any sum to a resident by way of:
- Technical services fees; or
- Professional services fees; or
- Royalty; or
- Any commission or fees or remuneration, no matter what name is called, besides those on which tax is deductible under section 194J to a company director; or
- As per section 28(VA), non-complete fees shall deduct tax at source or TDS at the rate of:
- 20% if the payee does not furnish PAN
- 2% if fees for royalty or for technical services (not being professional services) in the nature of consideration for exhibition, distribution, or sale of cinematographic films, and
- 10% in other cases
194J TDS Limit
There are certain guidelines that should be followed when it comes to a time limit for depositing TDS below the section 194J which are as follows:
- Under section 194J, if the TDS deduction is made on behalf of the government or by the government, the deposit should be done on the same day itself.
- Whereas in other cases, the tax is deducted from the TDS that can be deposited in a week from the end of the month.
- There are several special cases that might be enabled to deduct TDS every quarter approved by the assessing officer.
- In case if the payment is done on the last day of the financial year, the deposit of TDS should occur within two months from the end of the financial year in which it was credited.
FAQs related to Section 194J TDS
- In what situations, there is no need to deduct TDS u/s 194J?
There is no need to make TDS deductions u/s 194J when the aggregate of such sums paid during the fiscal year or paid or likely to be credited or accredited by the aforesaid person to the account of the payee, does not exceed –
- Rs. 30,000 in the case of fees for technical services referred to above.
- Rs. 30,000 in the case of non-complete fee referred to above.
- Rs. 30,000 in the case of fees for professional services referred to above.
- Rs. 30,000 in the case of royalty referred to above.
Above all, it should be noted that there is no such limit in the case of payments done to a director. The tax would be deducted for sure no matter how small the amount is.
- If non-residents who are making payments to solicitor, advocate, lawyer, or CA with no PE in India are needed to deduct 194J TDS?
Any fees paid by a non-resident through regular banking channels to any resident like solicitor, advocate, lawyer, or CA who does not have any permanent establishment or agent of business connection in India might not be subject to the TDS provisions under section 194J. But, accounting companies and foreign enterprises are needed to send a quarterly statement that furnishes the address and name of the person to whom the taxes are paid to the CBDT, Deputy Secretary, Ministry of Finance, Foreign Tax Division, Department of Revenue in New Delhi. You can find this regulation in circular no. 726, dated 18/10/1995.
- Who will be responsible to deduct TDS under section 194J?
Any person besides a HUF or an individual who is liable to pay to a resident any amount of sum by way of:
- Fees for technical services,
- Fees for provisional services,
- Any amount of sum referred to in clause (VA) of section 28 (non-complete payment),
- Any fee, commission, or remuneration, no matter what the name is, paid to a director, which does not come under the category of salary (w.e.f. 1.7.2012),
- Shall deduct income tax on income included therein.
- A Hindu undivided family or an individual, whose total gross receipts, sales, or turnover from the professional or business is undertaken by him exceed the limits of monetary mentioned under clause (a) or clause (b) of section 44AB during the fiscal year instantly preceding the fiscal year in which such amount of sum by way of fees for professional services or technical services is paid or credited, shall also be responsible to deduct income tax under the section. [Proviso 2 to section 194J(1)].
- If provisions of section 194J can be applied to service offered by BSNL/MTNL for services of access/port/interconnect/toll?
The term ‘fees for technical services’ specified in section 194J would refer to only technical services offered by a human but not involve any technical services rendered by robots or machines. Hence, services offered by BSNL/MTNL for toll/access/port/interconnect services would not be listed within the purview of payments as given under section 194J, so as to be responsible for tax deduction at source.
- What is referred to in the expression ‘fees for technical services’ specified under section 194J?
Explanation (b) to section 194J states that ‘fees for technical services shall have the similar meaning as given in explanation 2 to clause (vii) of subsection (1) of section 9, which offers ‘fees for technical services’ as any consideration (comprising any lump sum consideration) for providing any technical, managerial, or consultancy services (involving the rendering of other personnel or technical services) but does not involve consideration for any assembly, construction, or mining carried out by the recipient or consideration which would be recipient’s income chargeable under the head “Salaries.”
- I want to know whether TDS under section 194J is also deductible on reimbursements?
TDS under 194C and 194J refer to any amount of sum paid i.e., including reimbursement of actual expenses as well as applicable reimbursements does only in cases where bills are issued for the gross amount inclusive of professional fees. You can refer to circular no. 715 dated 08/08/1995. Moreover, circular no. 720 dated 30/08/1995 specifies that the provision of section 194C and 194J is not applied where bills are issued separately by the consultants for incurred reimbursements of actual expenses.