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2022

TDS on Professional or Technical Services [Section 194J]

TDS on Professional or Technical ServicesSection 194J Blog Post

TDS is the abbreviation for Tax Deducted at Source. TDS is a direct taxation mechanism which was introduced to collect taxes from the source of income itself or at the time of income payout. Under this mechanism, a person liable to make payment to any other person is required to deduct tax at source from the total amount payable and transfer the balance to the recipient of such income. The person liable to make payment is called deductor while the recipient of the income is called the deductee. The deductor would deduct TDS at the time of crediting the amount to the account of the deductee or at the time of actual payment whichever is earlier. The TDS so deducted shall reflect in Form 26AS of the deductee for the relevant financial year. The deductee can take tax credit of such TDS amount at the time of filing of Income Tax Return.

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

Liability to Deduct TDS under Section 194J:

  • Every person, who is making a payment in the nature of fees for professional or technical services, is liable to deduct tax at source under this section.
  • However, individual and HUF who are not subject to tax audit under section 44AB are not required to deduct TDS under this section.

Nature of Payment covered under section 194J:

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

  • Professional fees;
  • Fees for technical services;
  • Remuneration paid to directors excluding salary (For e.g., sitting fees to attend board meetings)
  • Royalty;
  • Non-Compete Fees: 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 to not share any technical knowledge or know-how.

 

1. Professional Services include following:

  • 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, sports columnists).

 

2. Technical Services include following:

  • Managerial;
  • Technical; or
  • Consultancy Services (including the provision of services of technical or other personnel).

Note: Any payment for following purpose is not included in the scope of Section 194J:

  • Construction;
  • Assembly;
  • Mining; or
  • A project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

 

3. Call Center Business:

Apart from professional and technical services, any payment given to the business of running only call center is also included in the scope of section 194J.

Threshold Limit under Section 194J:

  • TDS is required to be deducted if the amount of payment in a year exceeds Rs. 30,000/-.

Rate of TDS:

Particulars

TDS Rate (with PAN)

TDS Rate (without PAN)

Payment to resident person

10%

20%

Payment to the business of running only call center

2%

20%

Non-Applicability of Section 194J:

Section 194J shall not be applicable in following cases:

  • 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.
  • Where the amount of payment (at one time or in total during the whole financial year) does not exceed Rs. 30000.

Special Notes:

  • Maintenance Contract: Any payment made for maintenance contracts (including the supply of spares) will be liable to TDS u/s 194C. But if such payment is made for giving any technical services then Section 194J will become applicable.
  • Payment to Recruitment Agency: Any payment made to recruitment agencies (like Monster India or Naukri.com etc.) will be liable to TDS u/s 194J.
  • The TDS under this section will be applicable on the amount (excluding GST) only if the GST value is shown separately on the bill.
  • Any payment (in the form of commission) paid by a media house to any advertising agency will be liable to TDS u/s 194J.

Time of Deduction of TDS:

  • The Deductor who is liable to deduct TDS under provisions of this section is required to deduct TDS within earlier of the following dates:
  • At the time of credit of income to the account of the payee; or
  • At the time of payment in cash, cheque, draft, or by any other mode.
  • For this purpose credit to ― Expense Payable account‖ or Suspense account‖ or any other name shall be deemed to be a credit of such income to the account of the payee.
  • Payment may be made in cash or by issue of a cheque or draft of by any other mode.

Time Limit to deposit TDS:

  • TDS deducted is required to be deposited to the credit of the Government within given below timeline to avoid interest:

 

Month of Deduction

Due date of deposit of TDS

During any month from April to February

7th of Subsequent Month

During the month of March

30th April

TDS Return Filing Due Date:

 

Quarter

TDS Return Filing Due Date

Q1: April to June

31st July

Q2: July to September

31st October

Q3: October to December

31st January

Q4: January to March

31st May

Due Date of Issuance of TDS Certificate:

Quarter

TDS Return Filing Due Date

Q1: April to June

15th  August

Q2: July to September

15th  November

Q3: October to December

15th February

Q4: January to March

15th June

Interest on Late Filing:

 

Section

Nature of Default

Interest Payable

Period for which interest is to be paid

201A

Non deduction of tax at source, either in whole or in part

1% per month or part thereof

From the date on which tax deductible to the date on which tax is actually deducted.

After deduction of tax, Non-payment of tax either in whole or in part

1.5% per month or part thereof

From the date of deduction to the date of payment.

Notes:

  • The above interest should be paid before filing of TDS return. The deductor can make the payment of interest on such late payment of TDS before filing TDS returns or demand raised by TRACES.
  • The interest paid u/s 201A is not allowed as an expense under the Income Tax provisions.
  • Interest to be calculated on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

Penalty for late filing of TDS Returns:

  • Section 234E:
    • The deductor will be liable to pay by way of fees Rs.200 per day till the failure to pay TDS continues.
    • However, the penalty should not exceed the amount of TDS for which the statement was required to be filed.
  • Section 271H:
  • Also, a penalty from Rs.10,000 to Rs.1 lakh is leviable under Section 271H if a company provides incorrect information or fails to submit the returns within the specified due date.
  • This penalty will be charged in addition to the penalty under Section 234E.
  • No penalty under Section 271H will be charged in case of delay in filing the TDS/TCS return if the following conditions are satisfied:
  1. The tax deducted/collected at source is paid to the credit of the government.
  2. Late filing fees and interest (if any) is paid to the credit of the government.
  3. The TDS/TCS return is filed before the expiry of a period of one year from the due date specified in this behalf.

 

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