TDS ON PROFESSION-TECHNICAL SERVICES SECTION 194J

As per section 194J, tax is to be deducted in respect of the following payments to a resident:  a) Fees for professional services, or ...

As per section 194J, tax is to be deducted in respect of the following payments to a resident: 

• a) Fees for professional services, or 
• b) Fees for technical services, or 
• c) Director’s fees (not in the nature of salary), or 
• d) Royalty, or 
• e) Any sum referred to in clause (va) of section 28 [i.e. non-compete fee]. 

The provisions of section 194J are not applicable in case of payment of fees, royalty, etc. to a non-resident. Payments made to non-residents are also covered under TDS mechanism, however, tax in such a case is to be deducted as per section 195. 

(a) "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 Board for the purposes of section 44AA or of this section;

(b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

(d) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

Illustration – 1 

Essem Enterprises, a partnership firm took consultancy from a Chartered Accountant located at Delhi. The firm has paid fees of Rs. 84,000 to a Chartered Accountant. Should the firm deduct tax at source from the professional fees? 

In this case, the professional fees are paid to a resident and hence, the firm has to deduct tax under section 194J from the fees of Rs. 84,000. 

Illustration – 2 

SM Trading Co., a partnership firm took consultancy from an engineer located at New York. The firm has paid fees of Rs. 84,000 to the engineer. Should the firm deduct tax at source under section 194J from the fees paid to the engineer? 

In this case, the professional fees are paid to a non-resident and hence, tax is not to be deducted under section 194J. However, section 195 requires deduction of tax at source from payment made to a non-resident if such payment is chargeable to tax. Hence, the firm may require to deduct tax at source under section 195. For such purpose provisions of tax treaty was to be considered. 

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• Rate of TDS 

As per section 194J, tax is to be deducted @ 10% from the payments covered under section 194J. However, if the payee does not furnish his Permanent Account Number (PAN) then the payer has to deduct tax at the higher of following: 

• At the rate specified in the relevant provision of the Income-tax Act. 
• At the rate or rates in force, i.e., the rate prescribed in the Finance Act. 
• At the rate of 20% under section 206AA (read detail u/s 206AA) 

No Cess or surcharge is to be deducted over and above the basic rate of 10% on payments made to resident.

Further Rate of TDS is "two percent" instead 10% in the case of a payee, engaged only in the business of operation of call centre.

No TDS on service Tax: As per circular 01/2014 dated 13.01.2014 TDS is not applicable on service tax part if service tax is shown separately. No TDS on GST: As per Circular 23/2017 ,TDS is not applicable on service tax part if service tax is shown separately.

check Complete [TDS Rate Chart -fy-2018-19] and related provisions 

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• Tax to be deducted by whom? 

Every person (i.e. payer) other than an individual or a Hindu undivided family (HUF), who is responsible to make payments covered under section 194J to a resident, is liable to deduct tax at source under section 194J. 

An individual or a HUF, whose total sales, gross receipts or turnover from the business or profession carried on by him/it exceeds the monetary limits specified under section 44AB during the financial year immediately preceding the financial year in which aforesaid amount is credited or paid, shall be liable to deduct tax under this section. In other words, an individual or a HUF is liable to deduct TDS under this section, if such individual or HUF was liable to get accounts audited under section 44AB in the preceding financial year. Effectively Individual/ Huf  not liable to deduct tax in first year of operation irrespective to their turnover under this section as the rules says turnover of immediately preceding financial year.

Illustration – 3 

Mr. Kumar is running a plastic factory. The total turnover of the factory during the financial year 2017-18 amounted to Rs. 34,00,000. On 8-4-2018, he took consultancy of a Delhi based Company Secretary. The consultancy fees amounted to Rs. 84,000. Should Mr. Kumar deduct tax from consultancy fees of Rs. 84,000? 

As per section 194J, an individual or a HUF has to deduct tax while making payments covered under section 194J if he/it was liable to get its account audited in the preceding financial year. In this case, professional fees pertain to the financial year 2018-19 and the immediately preceding financial year is 2017-18. Thus, if in the financial year 2017-18, Mr. Kumar was liable to get his account audited, then he will be liable to deduct tax on professional fees of Rs. 84,000 to be paid by him in the financial year 2018-19. However, if he was not liable to get his account audited during the financial year 2017-18, then he will not be liable to deduct tax from professional fees of Rs. 84,000. 

For the financial year 2017-18, a person has to get his accounts audited if the turnover from the business exceeds Rs. 1,00,00,000. In this case, the turnover of Mr. Kumar for the financial year 2017-18 is Rs. 34,00,000 which is below Rs. 1,00,00,000 and hence he was not liable to get his account audited during the financial year 2017-18. 

Mr. Kumar was not liable to get his account audited in the financial year 2017-18 and hence, he will not be liable to deduct tax in respect of professional fees paid by him during the financial year 2018-19. 

Illustration – 4 

Mr. Rajat is running a garments factory and he opts for presumptive tax scheme under section 44AD. The total turnover of the factory during the financial year 2017-18 amounted to Rs. 1,84,00,000. On 8-4-2018, he took consultancy of a Delhi based Chartered Accountant . The consultancy fees amounted to Rs. 1,84,000. Should Mr. Rajat deduct tax from consultancy fees of Rs. 1,84,000? 

As per section 194J, an individual or HUF has to deduct tax while making payments covered under section 194J if he/it was liable to get its account audited in the preceding financial year. In this case, professional fees pertain to the financial year 2018-19 and immediately preceding financial year will be 2017-18. Thus, if in the financial year 2017-18, Mr. Rajat was liable to get his account audited then he will be liable to deduct tax on professional fees of Rs. 84,000 to be paid by him in the financial year 2018-19. However, if he was not liable to get his account audited during the financial year 2017-18, then he will not be liable to deduct tax from professional fees of Rs. 84,000. 

For the financial year 2017-18, a person has to get his accounts audited if the turnover from the business exceeds Rs. 1,00,00,000. Provided that a person is not liable for tax audit. If he declares presumptive income under section 44AD and his turnover does not exceed Rs. 2 crores in such previous year. In this case, the turnover of Mr. Rajat for the financial year 2017-18 is Rs. 1,84,00,000 which is below Rs. 2,00,00,000 and hence he was not liable to get his account audited during the financial year 2017-18. 

Mr. Rajat is not liable to get his account audited in the financial year 2017-18 and hence, he will not be liable to deduct tax in respect of professional fees paid by him during the financial year 2018-19. 

Illustration – 5 

Kumar & Co., a partnership firm is engaged in the business of trading of food grains. The total turnover of the firm during the financial year 2017-18 amounted to Rs. 84,00,000. On 8-4-2018, it took consultancy of a Delhi based Chartered Account firm. The consultancy fees amounted to Rs. 84,000. Should the firm deduct tax from interest of Rs. 84,000? 

As per section 194J, any person other than an individual or HUF has to deduct tax from payment covered under section 194J irrespective of its obligation to gets accounts audited under Section 44AB during the preceding year. Hence, irrespective of obligation of the payer to gets accounts audited during the preceding year, the firm has to deduct tax from interest paid by it. 

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• When tax shall be deducted? 

As per section 194J, tax is to be deducted at the time of payment or credit (to any account by whatever name called), whichever is earlier. 

Illustration -6

Essem Publications, a partnership firm has to pay royalty of Rs. 1,84,000 to Mr. Kumar residing in Delhi. The royalty is credited to the account of Mr. Kumar in the month of March 2019, but the same is actually paid in the month of May 2019. When is the firm liable to deduct tax, in March 2019 or in May 2019? 

** 

As per section 194J, tax is to be deducted at the time of payment or credit (to any account by whatever name called), whichever is earlier. In this case, royalty is credited to the account of the payee in March 2019 and the same is actually paid in the month of May 2019. In other words, the time of credit is March 2019 and the time of payment is May 2019, hence, the liability to deduct tax will arise in the month of March 2019. 

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• Cut-off Limit

No tax is to be deducted if the amount of professional fees or technical fees or royalty or non-compete fee during the financial year does not exceed Rs. 30,000. However, there is no such limit in case of director’s fees.

The section 194J used the following wording for cut off amount  where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed  thirty thousand rupees .

Means if there are expectations that amount paid or credited during a financial year will be more than Rs 30000 then TDS is deductible from first payment even first payment during the year is less than Rs 30000/-. TDS is deductible on full amount if threshold limit is crossed during the year including the amount paid earlier during the year along with interest, if applicable.

Illustration – 7

Kumar & Co., a partnership firm is engaged in the business of trading of food grains. During the financial year 2018-19, it took consultancy of a Delhi based Chartered Accountant firm. The consultancy fees for the year amounted to Rs. 24,000. Should the firm deduct tax from fees of Rs. 24,000? 

As per section 194J, no tax is to be deducted from professional fees if the aggregate fees for the year do not exceed Rs. 30,000. In this case, the aggregate fees for the year amounted to Rs. 24,000 which is below Rs. 30,000 and hence, the firm is not liable to deduct tax from the professional fees of Rs. 24,000. 

Illustration – 8

Ratan & Co., a partnership firm is engaged in the business of trading of clothes. During the financial year 2018-19, it took consultancy of a Delhi based software engineer. The consultancy fees for the year amounted to Rs. 31,000. Should the firm deduct tax from fees of Rs. 31,000? 

** 

As per section 194J, no tax is to be deducted from professional fees if the aggregate fees for the year do not exceed Rs. 30,000. In this case, the aggregate fees for the year amounted to Rs. 31,000. Once the fees for the year exceeds Rs. 30,000, tax is to be deducted from the entire fees and not from fees in excess of Rs. 30,000. Hence, the firm will be liable to deduct tax on total fees of Rs. 31,000. 

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• When no tax shall be deducted? 

Following are few important instances in which there is no requirement of deduction of tax at source under section 194J. 

1. No tax is to be deducted if the amount of professional fees or technical fees or royalty or non-compete fee during the financial year does not exceed Rs. 30,000. However, there is no such limit in case of director’s fees.(already explained above)

2. No tax to be deducted from fees paid by an individual/a HUF for the professional service received by him/it for personal purposes. 

No tax is to be deducted by a payer being an individual or a HUF in respect of fees for professional service, if such fees are paid for any personal service of such individual or any member of the HUF. 

3. When the payee has obtained a certificate from the Assessing Officer for non - deduction or lower deduction of tax. 

The payee may approach the Assessing Officer by making an application in Form No. 13 for issuance of certificate for non-deduction of tax at source or lower deduction of tax. 

On receiving such an application, the AO may issue appropriate certificate in this regard if he is satisfied that the total income of the payee justifies the deduction of income-tax at any lower rate or nil deduction of income tax. 

As per Income-tax (Ninth Amendment) Rules, 2014, Certificate for non-deduction of income-tax shall be issued directly to the person responsible for deducting the tax under an advice to the payee (i.e. who made an application for issue of such certificate).Whereas, certificate of lower deduction of income-tax shall be issued to payee itself. 

If AO has issued certificate for no deduction of tax or lower deduction of tax, as the case may be, then payer should deduct tax accordingly. 

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• Payment of tax to the credit of the Government 

Tax deducted from interest by the non-Government deductor is to be paid to the credit of the Central Government by the following due dates:

• Tax deducted during the month of April to February should be paid to the credit of the Government on or before 7 days from the end of the month in which the tax is deducted
• Tax deducted during the month of March should be paid to the credit of the Government on or before 30th day of April.

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• Interest for delay in payment of TDS 

As per section 201, if any person who is liable to deduct tax at source does not deduct tax at source, or after so deducting fails to pay the whole or any part of the tax to the credit of the Government, then such person shall be liable to pay simple interest at following rates:

• Late Deduction : Interest shall be levied @ 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted.
• Late Deposit: Interest shall be levied @ 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid to the credit of the Government.

In other words, interest will be levied @ 1% for delay in deduction and @ 1.5% for delay in payment after deduction

Furnishing the TDS return  Issuance of TDS certificate 

Default in any prescribed procedure 

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• Disallowance of expenses while computing business income due to non-deduction of tax at source under section 194J 

As per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance while computing income chargeable to tax under the head “Profits and gains of business or profession”:

• If tax is deductible at source but is not deducted.
• If tax is deducted during the year, and the same is not paid on or before the due date of filing of return of income specified under section 139(1).

In other words, if tax is deducted during the year and the same is paid on or before the due date of filing the return as specified in section 139(1), then the concerned expenditure will be deductible in the year in which such expenditure is incurred.

However, any payment disallowed by aforesaid provision, shall be allowed as a deduction in computing the income of the year in which such tax deducted has been paid to the Government.

Illustration

Essem Traders a partnership firm has taken a loan from Mr. Varun residing at Agra. The annual interest for the financial year 2018-19 amounted to Rs. 84,000. In March 2019, the firm deducted tax of Rs. 8,400 from the interest and paid the same to the credit of the Government on 30th July, 2019. The due date of filing the return of income is 30th September, 2019. Can the firm claim deduction of interest of Rs. 84,000 while computing its taxable business income?

In this case, the tax deduction pertains to the month of March 2019, hence, it should be deposited to the credit of Government by 30th April 2019. The firm has deposited the tax to the credit of Government by 30th July, 2019, hence, there is a delay by the firm in payment of TDS amount to the credit of Government. For this delay, the firm will be liable to pay interest @ 1.5% per month or part of the month. However, this delay will not impact the deductibility of the interest while computing taxable business income.

As per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance while computing income chargeable to tax under the head “Profits and gains of business or profession”:

• If tax is deductible at source but is not deducted. 
• If tax is deducted during the year, and the same is not paid on or before the due date of filing of return of income specified under section 139(1)

In other words, if tax is deducted during the year and the same is paid on or before the due date of filing the return as specified in section 139(1), then the concerned expenditure will be deductible in the year in which such expenditure is incurred.

In this case, the due date of filing the return of income is 30th September and the firm has deposited the tax deducted by it to the credit of Government by 30th July, 2019 (i.e. before the due date of filing the return), hence, the firm can claim deduction of interest of Rs. 84,000 while computing its taxable business income.

Suppose in the given case, if instead of 30th July, the tax is deposited to the credit of the Government on 1st November, 2019, then the firm cannot claim deduction of interest to the tune of 30% i.e. of Rs. 25,200 while computing its taxable business income of the financial year 2018-19. In this case, it can claim deduction of Rs. 25,200 while computing its taxable business income of the financial year 2019-20.

check Complete [TDS Rate Chart -fy-2018-19] and related provisions 

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• TeXT FROM BARE ACT-SECTION- 194J continued on page-2

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Fees for professional or technical services.

194J. (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,

shall, 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, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein :

Provided that no deduction shall be made under this section—

(A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or

(B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed—

• (i) thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or
• (ii) thirty thousand rupees, in the case of fees for technical services referred to in clause (b), or
• (iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or
• (iv) thirty thousand rupees, in the case of sum referred to in clause (d) :

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :

Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family:

Provided also that the provisions of this section shall have effect, as if for the words "ten per cent", the words "two per cent" had been substituted in the case of a payee, engaged only in the business of operation of call centre].

(2) [***]

(3) [***]

Explanation.—For the purposes of this section,—

(a) "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 Board for the purposes of section 44AA or of this section;

(b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

(ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

(c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account 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 the provisions of this section shall apply accordingly.

TDS under Section 194J (www.simpletaxindia.net)
Nature of Payment	Fees for professional services / Technical services /  royalty  /remuneration or fees or commission payable to director (not covered under 192)
Deductor	Any person other than HUF/Individual
	HUF-Individual If turnover in immediately preceding the financial year is Covered under Tax audit u/s 44AB
Deductee	A Resident (for non resident section 195 applicable)
TDS rate	10% (2% on Call centers ) No cess /surcharge
Threshold Limit	30000(No Limit for Payment to director)
Time of deduction	Credit or payment whichever is earlier
Other points	No tds on profession services for personal purpose

Tax to be deducted/collected  by Govt  Office
1	Tax deposited without challan	Same day
2	Tax deposited with challan	7th of next month
3	Tax on perquisites opt to be deposited by the employer	7th of next month

Tax deducted/collected by other
1	tax deductible in March	30th April of next year
2	other months & tax on perquisites opted to be deposited by employer	7th of next month

Due date TDS Return 24Q, 26Q ,27Q TCS Return 27EQ        Form 16  Form 16A for Financial year 2018-19 for Govt as well as non Govt deductor (notification 30/2012 dt 29/04/2016)
Sl. No.	QTR ENDING	RETURN		TDS-TCS Certificate
		TDS	TCS	FORM 16A	FORM 16	FORM 27D
1	30th June	31st July	15th July	15th Aug	15 June,2019	30th July
2	30th Sep	31st Oct	15th Oct	15th Nov		30th Oct
3	31st Dec	31st Jan	15th Jan	15th Feb		30th Jan
4	31st Mar	31st May	15th May	15th June		30th May

INTEREST ON LATE DEDUCTION/DEPOSIT OF TDS-TCS
Section	Nature of default	Interest	Period
Interest under section  201(1A)	Non-deduction of tax at source, either in whole or part	1.00% per month	From the date on which tax was deductible to the date on which tax is actually deducted
	After deduction, nonpayment of tax, either in whole or part. Non- payment of tax u/s 192(1A)	1.50% Per Month	From the date on which tax was deducted to the date on which tax is actually paid
Simple Interest shall be calculated and part of month will be treated full Month