Section 194J of the Income-tax Act, 1961 deals with TDS deduction on fees for professional or technical services. The prescribed persons are required to deduct TDS @10% or 2%, as per the case may be when the payment amount exceeds Rs. 30,000. In this article, we have added Everything you need to know – Section 194J.
Types of payments covered under section 194J
Section 194J covers the following types of payments:
- Fees for professional services
- Fees for technical services
- Remuneration paid to the directors except for salary
- Non-compete fees, i.e., fees paid not to carry on any business or profession or not share any technical knowledge, patent, license, copyright, know-how, or any other similar nature payment.
Read more: What is TDS and its applicability?
Meaning of professional and technical services under section 194J
|Professional services||Legal, Medical, Architectural, Engineering , Interior decoration, Accountancy or technical consultancy, Advertising Other notified persons related to sports (event managers, coaches, commentators, anchors, trainers, referees, sportsperson, physicians, physiotherapists, , sports columnists)|
|Technical services||Managerial, Technical, Consultancy services, or Provision of technical services or other personnel (excluding construction, assembly, mining or any other consideration which is in nature of income chargeable under head “salaries”|
Who deducts TDS under section 194J?
Section 194J prescribes that every person making payments (As specified) are liable to deduct TDS. However, the following persons are not required to deduct TDS:
|Individual or HUF carrying on the business||If turnover doesn’t exceed Rs. 1 crore in the previous financial year|
|Individual or HUF carrying on the profession||If turnover doesn’t exceed Rs. 50 lakh in the previous financial year|
In short, all other entities are required to deduct TDS. However, individuals and HUF will be required to deduct TDS only if they are liable for the tax audit u/s 44AB in the preceding year.
Time of deducting TDS under section 194J
The TDS should be deducted at the early of:
- Passing entry in books of accounts, or
- Making the actual payment
Threshold limit for deducting TDS under section 194J
If any of the above payments made is more than Rs. 30,000 during a financial year, then TDS is required to be deducted. However, for making payments to the director, there is no threshold limit, i.e., the deductor has to deduct TDS even for the small amounts.
Important: Limit of Rs. 30,000 applies to each service, not in aggregate.
Example 1: Payment made for technical services Rs 15,000 and professional services Rs. 40,000.
Now, TDS will be deducted only on professional services, not on technical services.
Example 2: Payment made for technical services Rs 27,000 and professional services Rs. 20,000.
Now, there will be no deduction of TDS on any payment.
Rate of TDS under section 194J
|Type of payment||TDS rate under section 194J|
|All payments covered under this section||10%|
|From 1April 2020, payment for technical services (other than professional services)||2%|
|Payment made to call centers operators||2%|
|If the payee doesn’t furnish PAN (applicable for all cases)||20%|
As per finance bill 2020, few amendments have been made in Section 194J under TDS, which are applicable from 1 April 2020:
- TDS rate reduced from 10% to 2% for payments made for technical services only.
- Individuals and HUF liable for tax audit during the financial year immediately preceding the Previous year in which such interest is credited or paid are now liable to deduct TDS.
Due date of payment of tax under section 194J
|Month in which TDS deducted||Due date of payment in case of non-government deductor||Due date of payment in case of the Government deductor|
|From April to February||7th day of the succeeding month (For e.g., TDS deducted in April, payment has to be made up to 7Th May)||7th day of the succeeding month (For e.g., TDS deducted in April, payment has to be made up to 7Th May)|
|In the month of March||30th April||On the same day of making payment to the payee but the corresponding challan is deposited by the 7th day of the succeeding month|
Interest provisions for non-deduction or late deduction of TDS
In case of non-deduction or late deduction of TDS, the deductor is liable to pay interest in addition to the amount of the TDS as:
No deduction of TDS: Interest shall be 1%per month or part of the month starting from the due date of deducting TDS up to the actual date of deduction.
TDS deducted but not paid to the government: Interest shall be 1.5% per month or the part of the month, starting from the date on which TDS was deducted up to the payment date.
In addition to the above interest and TDS payments, there shall be disallowance of expenses @ 30% in the financial year in which TDS is deducted. However, the deductor can claim such expense later on in the financial year in which he makes the payment of TDS.