Hello Everyone, in this post we will see in detail about what is TDS Section 194J and the various concepts like types of payment, the exemption limit as well as the consequences of late remittance.
We will cover the following topics:
- Introduction to Section 194J
- Types of payments covered with an explanation
- Professional Service
- Technical service
- Exemption limit for Section 194J
- Who should deduct tax
- Rate of tax
- Consequences of non-deduction or late deduction
Introduction to Section 194J
Professional and technical fees are one of the common types of payments made by the business entity to the government.
Thus, in a way, it reduced the stress on taxpayers because split in the deduction of tax into payable parts in a Financial Year. They are also awarded credits for the timely payment of TDS.
The professional and technical services has deduction of tax at source as per Section 194J of Income-tax which came into effect on 1st July 1995.
Individuals / HUF availing exemptions should make such payments for personal use only and also the person deducting tax should generate Form 16.
Types of payments covered with an explanation
The sum we pay as a fee to the following is considered for tax deduction under Section 194J;
- Fee for professional services
- Fee for technical services
- Remuneration/fee/commission to a director or not carrying out any activity related to any business or not sharing any know-how, patent, copyright, etc.
The services provided by a legal, medical, engineering, architectural, accountancy professionals or technical consultancy, interior decoration, advertising or other profession as notified by the board for the purpose of Section 44AA.
Technical service is the relaxation (including any lump sum consideration) for providing any:
- Managerial services
- Technical services
- Consultancy services
However, this does not include relaxation for any construction, assembly, mining or project taken by the recipient or consideration which would be taxable income of the recipient under “Salaries”.
Royalty includes any lump sum consideration but not any consideration for taxable income of the recipient under the “Capital gains” for:
(i) The transfer of all or few rights (even granting of a licence) regarding any patent, invention, model, design, secret formula or process or trademark, etc.
(ii) Giving any kind of information on the working or the use of a patent, invention, model, design, secret formula or process or trademark, etc.
(iii) The use of any patent, invention, model, design, secret formula or process or trademark, etc.
(iv) Providing any information based on technical, industrial, commercial or scientific knowledge, experience or skill.
(iv a) The right to use any industrial, commercial or scientific equipment but not the amount as per the section 44BB;
(v) The transfer of all or few rights (even granting of a license) regarding any copyright, literary, artistic or scientific work and films or tapes used for television or radio broadcasting (no consideration for the sale, distribution or exhibition of cinematographic films).
(vi) The offering any services related to the activities referred to in the sub-clauses (i) to (iv), (iv a) and (v).
Exemption Limit for Section 194J
In case of exemption limit under 194J, the limit amount of Rs. 30,000 for the F.Y. is to be considered independently for royalty, non compete fees, fee for technical services and fee for professional services.
But there is no regard for the payments made to a company director as tax is deducted.
Who should deduct tax
Every person, who is making a payment for the professional or technical services is responsible to deduct tax at source.
Some of the exceptions are:
- When an individual / HUF carrying on a business: Where the turnover is not above Rs. 1 crore in the previous Financial Year.
- When an individual / HUF carrying on the profession: Where the turnover is not above Rs. 50 lakh during the previous Financial Year.
In short, all entities need to deduct tax (except individuals / HUF who need not do a tax audit in the preceding year).
Consequences of non-deduction or late deduction
- Disallowance of a part of the expenditure: 30% of your expenses are declined in the year when it is claimed (to the profit and loss account) but it is again re-allowed in the year when TDS is paid back to the government.
- Impose of interest: if there is a delay in the payment of tax, that interest is paid along with the TDS.
The rate of interest is based on;
- When no deduction of tax happens: The Interest rate is 1% per month/part of a month from the date of deduction till the date of the actual tax deduction.
- When deducted tax is not paid: The Interest rate is 1.5% per month/part of a month from the date of deduction till the date of payment to the government.
Rate of deduction of tax
The payment of professional fees, technical charges and royalty have an interest rate of 10%.
When we make payments to call center operators, the tax interest rate is 2%.
If the payee does not provide his PAN, then the rate of deduction is 20%.
With that, we have come to an end of this post on the TDS Section 194J. Let us know your views and opinions in the comment section below.