Know all about TDS on Fees for Professional or Technical Services as per Section 194J
Tax deduction at source is a means of collecting tax on income, dividends or asset sales, by requiring the payer to deduct tax due before paying the balance to the payee. In India, under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. In this article we will discuss Tax deducted at source on payment made for professional or technical services as per Section194J.
When does section 194J applies?
Section 194J applies to any person, being an individual or a HUF, other than those individual or HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits of Rs. 1 crore and Rs.50 lakh in the immediately preceding financial year.
When does section 194J does not applies?
Section194J does not applies a person being an individual or a HUF or any other person, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits of Rs. 1crore and Rs.50 lakh in the immediately preceding financial year.
What do you mean by Professional services and fees for Technical services?
“Professional services” means 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 CBDT for the purposes of section 44AA or of this section.
Other professions notified for the purposes of section 44AA are as follows:
- Profession of “authorized representatives”;
- Profession of “film artist”;
- Profession of “company secretary”
The CBDT has notified the services rendered by following persons in relation to the sports activities as Professional Services for the purpose of section 194J:
- Sports Persons,
- Umpires and Referees,
- Coaches and Trainers,
- Team Physicians and Physiotherapists,
- Event Managers,
- Anchors, and
- Sports Columnists
Meaning of “Fees for technical services”
Explanation (b) to section 194J provides that the term ‘fees for technical services’ shall have the same meaning as in Explanation 2 to section 9(1)(vii). The term ‘fees for technical services’ as defined in Explanation 2 to section 9(i)(vii) means any consideration (including any lump sum consideration) for rendering of any of the following services:
- Managerial services;
- Technical services;
- Consultancy services;
- Provision of services of technical or other personnel
It is expressly provided that the term ‘fees for technical services’ will not include following types of consideration:
- Consideration for any construction, assembly, mining or like project, or
- Consideration which is chargeable under the head ‘Salaries’
What are the manner and rate of deduction of TDS under section 194J?
A. Manner of deduction of TDS:
The deduction is to be made at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
Where any sum referred to in (1) is credited to any account, whether called suspense account or by any other name, in the books of accounts of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and tax has to be deducted accordingly.
No tax deduction is required if the amount of fees or the aggregate of the amounts of fees credited or paid or likely to be credited or paid during a financial year does not exceed Rs. 30000 in the case of fees for professional services, Rs. 30,000 in the case of fees for technical services, Rs. 30,000 in the case of royalty and Rs.30,000 in the case of non-compete fees.
The limit of Rs. 30,000 under section 194J is applicable separately for fees for professional services, fees for technical services, royalty and non compete fees. It implies that if the payment to a person towards each of the above is less than Rs. 30,000, no tax is required to be deducted at source, even though the aggregate payment or credit exceeds Rs. 30,000. However, there is no such exemption limit for deduction of tax on any remuneration or fees or commission payable to director of a company.
B. Rate of TDS:
Every person, who is responsible for paying to a resident any sum by way of–
- Fees for professional services; or
- Any remuneration or fees or commission, by whatever name called, other than those on which tax is deductible under section 192, to a director of a company; or royalty, or non-compete fees
Payee shall deduct tax at source at the rate of 10%.
However, in case of Fees for technical services Payee shall deduct tax at source at the rate of 2%.
Also in case a payee, engaged only in the business of operation of call centre, the tax shall be deducted at source at 2%.
After 14th May 2020, TDS from professional service shall be deducted at 7.5% and TDS from Technical service shall be deducted at 1.5% till 31st March 2021.
Understanding with examples:
XYZ Ltd. Makes a payment of Rs. 28,000 to Mr. X on 02/08/2020 towards fees for professional services and another payment of Rs. 25,000 to him on the same date towards fees for technical services. Let us discuss whether TDS provisions under section 194J are attracted.
TDS provisions under section 194J would not get attracted, since the limit of Rs. 30,000 is applicable for fees for professional services and fees for technical services, separately. It is assumed that there is no other payment to Mr. X towards fees for professional services and fees for technical services during the F.Y.2020-21.