Tax Deducted at Source (TDS) serves as a crucial mechanism for the government’s tax collection by directly deducting taxes from the source of income. This system alleviates the taxpayer's responsibility by allowing them to claim credit for the deducted taxes when filing their income tax returns, thus streamlining the tax payment process.
Section 194J is one of the numerous subsections of the Income Tax Act 1961 that addresses Tax Deducted at Source (TDS). It is a highly efficient method of tax collection as it reduces tax evasion. It benefits the government and taxpayers but only applies to payments made using different professional or technical services.
Paying for professional fees or technical service fees is one of the most significant and frequent payment categories that organisations make. Fees paid to lawyers, doctors, engineers, architects, chartered accountants, interior decorators, advertisers, etc., are some examples of professional fees. The provision of management, technical, or consulting services are included in technical services. Professional and technical service fees are two of the most common payments made under Section 194J and are elaborated further in the blog.
Section 194J of the Income Tax Act covers payroll deduction for technical service providers and professionals. Before payment to the professional or technical service provider, the payer must subtract income tax at the source.
A person is only required to deduct Tax Deducted at Source (TDS) at the rate of 10% when specific payments are made to a specific resident, as per the guidelines of Section 194J of the Income Tax Act, 1961. The Indian government uses TDS to collect taxes from income sources.
As per this section, any person (other than an individual not covered under section 44AB in the preceding FY) who pays fees for professional or technical services will be required to deduct tax at source under section 194J of the Income Tax Act.
Individuals, however, must deduct TDS if they are subject to an audit under Section 44 AA and AB. Section 44AA addresses keeping books of accounts by specific individuals engaged in business or employment. The audit of the accounts of particular individuals involved in business or profession is covered by Section 44AB.
Here, the individual means:
Section 194J exempts certain categories of payees, such as individual or Hindu Undivided Family (HUF) recipients, from TDS deduction if they furnish their
The types of payments to residents covered under this section are as follows:
It covers fees for an individual's medicine, law, architecture, or engineering profession. Accountancy, advertising, interior design, technical consulting, and any other profession as designated by the Central Board of Direct Taxes (CBDT) by Section 44AA are also included.
Under Section 44AA, CBDT has notified the following professions that are liable to pay TDS on professional fees:
Company secretary-approved representatives and film artists
Athletes
Analysts
Event coordinators
Anchors
Umpires
Referees
Physiotherapists
Trainers
Coaches
Team doctors
Sports columnists
According to income tax regulations, "fees for technical services" refers to the management, technical, and consulting services; however, it does not include sums of money that the beneficiary of such income views as compensation. It includes:
Services involving technical or technological expertise
Managerial services, including the operation and management of the client's business
Consultancy services or advisory services where clients receive the necessary guidance and assistance for their business
Under the ruling of the Supreme Court, technical service includes all those services provided by humans and not by robots or machines.
According to Section 194J of the Income Tax Act, royalty payments given to an individual contemplating the transfer of their copyright, patent, or trademark must include 10% TDS. License fees for utilising a brand name or another person's intellectual property can be referred to as royalty payments.
A royalty is the amount paid for:
Transfer of ownership or use of a patent, trademark, model, design, innovation, etc.
Utilisation of inventions, patents, designs, etc.
Providing any information about using a recipe, patent, innovation, etc.
Transfer of rights for radio broadcasts about scientific discoveries, literary works, motion pictures, or videotapes does not include payment for the purchase, distribution, or display of motion pictures.
Supplying any information regarding expertise, experience, or understanding in the fields of technology, industry, commerce, or science
Non-compete fees refer to the payment, either in kind or cash, for an agreement that prevents the other party from disclosing any patent, trademark, franchise, know-how, commercial or business rights, license, or information that might be used for manufacturing, processing, or other temporary services.
The table below lists the TDS rate under Section 194J of Income Tax Act:
| Nature of Payment | Tax Deduction Rate |
|---|---|
| Fee payments for technical services | 2% |
| Fee payments made to call centers | 2% |
| Royalty paid for the sale, distribution, or screening of a film | 2% |
| Other payments | 10% |
| If the payee fails to provide a PAN | 20% |
| NPayment Type | Non-Government Deductors | Government Deductors |
|---|---|---|
| Payment made before 1st March | 7th day from the end of the month | 7th day from the end of the month |
| Payment made in March | April 30th | Tax payment is made on the date of professional or technical fees to the payee. Still, the corresponding challan is deposited by the 7th day from the end of March. |
A vital component of the Income Tax Act's regulation of professional service taxation is the Tax Deducted at Source (TDS) method found in Section 194J of Income Tax Act. Stakeholders can fulfil their tax obligations and support an open and accountable financial environment by being aware of the subtleties of Section 194J. A tax-compliant and financially stable corporate climate is fostered by keeping informed and seeking professional assistance, even as the regulatory environment changes.
Tax Deducted at Source (TDS): A mechanism mandated by the Income Tax Act for deducting tax at the time of payment, ensuring a steady revenue stream for the government.
Section 44AA and Section 44AB: Provisions outlining requirements for maintaining accounts and getting them audited, respectively, under the Income Tax Act, ensuring compliance and transparency in financial reporting.
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The threshold limit for deducting tax is ₹30,000. The tax must be removed if the professional and technical services payment is more significant than ₹30,000 during the year. Please note this ₹30,000 maximum limit applies to each item or payment independently.
If the payee's gross net income for the year is less than the taxable income and the TDS is excluded under section 194J, the payee may request a refund of the TDS by filing an income tax return.
Form ITR 4. You can file ITR Form 4 if the 194J receipt is less than ₹50 lakh; otherwise, you should file ITR 3.
Advocate fees have a 10% TDS rate, subtracted at the time of payment. If the fees paid to the advocate exceed ₹30,000 in a financial year, TDS is applicable, regardless of whether the advocate is an individual or a Hindu Undivided Family (HUF).
Yes. If you have had excess TDS withheld from your income, you can receive your TDS refund without filing an ITR.
To reflect 194J income in your Income Tax Return (ITR), you need to report it under the "Income from Other Sources" section, specifying the payer's details, nature of payment, and the amount received, ensuring compliance with relevant tax regulations.
