TDS Rates under Section 194J

Types of payments covered under Section 194J

An individual should deduct TDS at the rate of 10% when the following payments are made to a resident, in a fiscal year (higher than Rs.30,000):

1. Amount charged as professional services fee
2. Amount charged as technical service fee
3. Non-compete fee according to the Income Tax Act of Section 28(VA)
4. Royalty
5. Remuneration paid to directors with the exception of salary 

Professional Services

1. It implies the services carried out by an individual in the medical, architectural, legal, medical or engineering profession. Other services include accountancy, interior decoration, advertising, technical consultancy or any other profession that is accepted by the Board under Section 44AA.
2. Other services that are accepted under Section 44AA are film artists, company secretaries, and authorized representatives.
3. Sportspersons, event managers, commentators, anchors, umpires and referees, coaches and trainers, physiotherapists, team physicians and sports columnists also come under it.

List of Professional Services under Section 194J

• Medical Services
• Legal Services
• Architectural Services
• Engineering Services
• Advertising Services
• Interior Decoration Services
• Technical Consultancy Services
• Accountancy Services

Technical Services

1. It implies the services rendered by an individual for consultancy, technical or managerial services.

1. Services such as assembly, mining, construction are not considered as technical services as income from the same would come under the head salary of the recipient.

List of technical services under section 194J

• Consultancy services
• Technical or
• Managerial services

Non Compete Fees

Non-Compete Fees for Section 194J implies the amount received either in cash or kind in return for an agreement that binds the person from sharing any patent, license, franchise, trademark, know-how or any commercial or business rights, technique or information likely to be used elsewhere for manufacture, processing or any other provisional service.

Royalty

Royalty for the purpose of this section means consideration for:

1. Transfer of rights for an invention, secret formula, model, design, trademark or patent.
2. Use of an invention, model, patent, etc.
3. Sharing any information related to the use of an invention, patent, formula, etc.
4. Use or right to use the equipment for industrial, scientific or commercial purposes.
5. Transfer of rights related to literary work, scientific findings, films or videotapes for radio broadcasting, no consideration for the sale, exhibition or distribution of the same.

Specific Cases

TDS deduction is also applicable under Section 194J on certain specific cases, decided by the case laws and circulars of the department:

1. Medical services rendered in hospitals.
2. Professional fees charged by film artists from advertising agencies.
3. Amount given to recruitment agencies and HR consultancy.
4. Payment made by companies to share registrars.

Time Limit for Deposit of TDS

You are required to deposit your TDS within a stipulated time frame:

Threshold limit for Deducting Tax

The threshold limit for deducting tax is as follows:

1. Only if the payment of technical/ professional services is above Rs.30,000 in a financial year, can the tax be deducted.

1. Do note that the Rs.30,000 threshold limit is applicable to each payment or item independently.
2. There is no threshold limit on payments made as remuneration, fees or commission. Tax will be deducted even on amount below Rs.30,000.

Tax Deduction Rates under Section 194J

The tax deduction rates under Section 194J are mentioned in the table below:

Who Can Deduct TDS under Section 194J

All individuals who pay a charge for professional/technical services must deduct tax at the source. However, the following individuals are not required to deduct TDS on these payments:

1. HUF/individual involved in business: If the preceding fiscal year's turnover did not surpass Rs.1 crore.

1. HUF/individual involved in profession: If the preceding fiscal year's turnover did not surpass Rs.50 lakh.

All business entities except HUF/individuals who do not have to conduct a tax audit the previous year must deduct TDS when they make fee payments for technical/professional services.

Time Limit for Filing Returns under Section 194J

After you deposit the TDS to the government, you must file a quarterly TDS return in form 26Q. The deadlines are listed below:

When is TDS Statement Issued under Section 194J

The person designated for deducting TDS issues the TDS statement, also referred to as Form 16A. The deductee, or the person whose TDS is deducted from their income, receives Form 16A. The due dates to issue the TDS certificate are listed below:

Consequences of Late Deduction/Non-Deduction of TDS

Failing to deduct taxes or deducting it late has two consequences:

1. Interest will be levied: If TDS was deducted, an interest rate of 1% per month/part of the month will be levied. If the TDS was deducted but not paid to the government, an interest rate of 1.5% per month/part of the month will be levied.
2. Expenses will be disallowed: If a timely deduction of TDS is not done, the individual is not allowed to claim the deduction of these expenses from PGBP income. 30% of the payment is the amount of disallowed expenditure.

Applying for TDS at a Lower Rate

According to Section 197, the person receiving payment can apply for a reduction of rate in TDS, by filling in Form 13 and sending it to the assessing officer. If approved by the officer, a certificate stating a deduction in the TDS is issued to the assessee.

Time Limit to Deposit TDS under Section 194J

The following guidelines on time limit for depositing TDS under the section must be followed:

1. If the TDS deduction under Section 194J is made by the government or on behalf of the government, the deposit has to be made on the same day.
2. In other cases, TDS can be deposited within a week from the month-end in which the tax deduction has been made.
3. If the payment is made on the last day of the fiscal year, the TDS deposit must happen within two months from that financial year's end in which it was credited.
4. Some special cases may be allowed to deduct TDS every quarter, provided the assessing officer has approved.

Exemption of Section 194J Applicability Under the Income Tax Act

The exemption on applicability of Section 194J under Income Tax Act is given below:

1. Payments made by individuals or HUF for personal purposes.

1. Payments to non-resident contractors or sub-contractors.

1. TDS (Tax Deducted at Source) not applicable if the total payment in a financial year (or a single transaction) is not more than Rs.30,000.

1. TDS deduction is exempted for individuals or HUFs on royalty and non-compete fees even if those are commercial payments.