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Section 194 J TDS on Fees for professional or technical services

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As you know Professional & technical services attracts TDS under section 194 J of Income tax act. The Section 194j came into force  from 1st day of July, 1995. Section 194 J says

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—

(A) fees for professional services, or

(B) fees for technical services, [or]

(Ba) 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

(C) royalty, or

(D) any sum referred to in clause (va) of section 28

The clause (va) of section 28

Any sum, whether received or receivable, in cash or kind, under an agreement for—

(a) not carrying out any activity in relation to any business; or Profession

(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:

Who shall be the recipient of Income?

A Resident person shall be the recipient of Income under section 6 of Income tax act.

What kinds of Incomes covered section 194 J?

Fees for professional /technical service/royalty or a payment to the director of company other than TDS chargeable under section 192 ( salary & other allowance),royalty or payment in the nature of non-compete fee under section 28 clause(iv).

  • What is non compete payments under section 28 clause (iv)

any sum, whether received or receivable, in cash or kind, under an agreement for—

(a) not carrying out any activity in relation to any business or profession; or

(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:

What is the rate tax deduction under section 192 J?

The rate of tax deducted from the professional fee ,technical charges & royalty is  10 % on such payments and person engaged in the call center business shall deduct 2 % from sources.

Exemption Limit

The payment of professional fee,technical service fee royalty  and payment in the nature of non compete fee shall not exceeds Thirty thousand INR ( Rs 30000) during the Financial Year are exempted.

No Exemption or marginal limit is applicable in the case of payment made to a company directors other than the amount delectable under section 192.  The tax must be deducted from all such payments irrespective of the value.

Who is the payer & Whos is liable to deduct TDS on professional fee

The payer shall be a resident person, The person who is making payment of Income is responsible for the tax deduction.  As you know In Income tax person is not just Individuals.  But certain category of persons are excluded in certain conditions.

Who are Excluded

An Individual and Hindu Undivided family is engaged in a business;and whose total sales turnover or gross receipt does not exceeds one Crore Rupees in any previous year.

An Individual and Hindu undivided family is engaged in a profession and whose total gross receipt exceeds fifty lakhs rupees in previous year are excluded from the deduction fromsuch payments.

What time tax has to be deducted ?

Tax has to be deducted at source at the time of payment is made in cash, cheque or demand draft or any other mode or at the time of crediting such amounts in payee’s bank account or transfer to suspense account  whichever comes earlier.

What is the meaning of professional service under the Income tax act.

Professional service means service rendered by a legal, medical,engineering ,architectural,accountancy professionals  or technical consultancy, interior decoration, advertising or other profession notified by the board for the purpose of Section 44AA.  Section 44 AA speaks about maintenance of books of accounts by persons carry on business or profession.

Meaning of Fee for technical service

fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.

What Does Royalty means ?

 “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—

 (i)  the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(ii)  the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iii)  the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iv)  the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;

(iva)  the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

(v)  the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or

(vi)  the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).

Some of the professional services falls under this section are.

TDS under 194 j is applicable to following services.

  1. Chartered Accountant
  2. Accounting Professional Services
  3. Legal Services
  4. Medical Services
  5. Engineering Services
  6. Architect Services
  7. Technical Consultancy Services
  8. Interior decoration services
  9. Advertising services like, designing and ad film making.

Section 194 J is applicable when payment made to the following professionals

  1. Authorized representative
  2. Film professionals like Actors,Cameraman,Director,Music directors,Art directors,editors,singers,lyricist,Story writer,Costume designer,
  3. Company Secretary.
  4. Sports man
  5. Umpires
  6. Referees
  7. Trainers
  8. Coaches
  9. Event managers
  10. Commentators
  11. Anchors
  12. Sports columnist
  13. Team Physicians and physio therapist.

Other Important points

  • Individuals and HUF availing exemptions shall make sure that, such payments are to be made exclusively for personal use.
  • The Person deducting TDS under this section should issue Form 16 with the amount of tax deducted with total consideration paid to the deductee.
  • The person from whom the deduction is made can claim the TDS paid with the income tax to be paid or can claim a refund in case of a non tax payer.

Finance Act 2016 Update on surcharge.

In cases in which tax has to be deducted under section 194 J of the Income-tax Act, the deductions shall be made at the rates specified in those sections and shall be increased by a surcharge, for purposes of the Union

(a) in the case of every individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, being a non-resident, calculated at the rate of fifteen per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees;

(b) in the case of every co-operative society or firm, being a non-resident, calculated at the rate of twelve per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees;

(c) in the case of every company, other than a domestic company, calculated,—

(i) at the rate of two per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees;

(ii) at the rate of five per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees.

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