Section 194J - TDS for Professional or Technical Services

TDS Section 194J is seeing renewed attention after the passage of Finance Bill 2020, which includes amendments to Section 194J that took effect on April 1, 2020. Section 194J TDS of the Income Tax Act of 1961 contains rules for deducting TDS on payments for scientific and skilled services.

This article was written to keep you informed about the updates and to give you a comprehensive rundown of Section 194J under TDS. You’ll also find detail on the applicability, TDS rate under Section 194J, and much more here.

Types of Payments in 194J

• TDS on professional fees
• Fee for technical services
• Remuneration paid to directors 
• Royalty
• Payments in the nature of non-compete fees

Amendments in TDS Section 194J 

TDS will be withdrawn at a rate of 2% in the case of payments for specialized services (not being skilled services) and up to 10% in all other cases under Section 194J.

Individuals or HUFs whose net revenue, gross earnings, or turnover from their company or career surpass Rs 1 crore in the case of a business or Rs 50 lacs in the case of a profession during the Financial year immediately preceding the FY in which such interest is charged or charged are required to deduct TDS. Where Section 44AB has been used, monetary caps would be used instead.

Who is Liable to Deduct TDS?

Everyone liable to make the following payments to any resident, except an employee or a HUF, is required to deduct TDS under Section 194J:

• Fees for specialized and engineering assistance, where applicable.
• Any remuneration, fees, commissions, or whatever name is given to a director of a corporation that is not a payment that is tax-exempt under Section 192 or a Royalty.
• Fees for non-competition under section 28 (VA).

Section 194J of the Income Tax Act TDS rate.

For services specified under section 194J of the Income Tax Act, the following rate applies:

Payments that are Protected by Section 194J

When making the following payments to a citizen in a fiscal year (over Rs.30,000), a person can subtract TDS at a rate of 10%:

• The sum is paid as a premium for professional services.
• Amount paid as a business fee for technical assistance
• Non-compete charge under Section 28(VA) of the Income Tax Act Royalty

Professional Services

It refers to the services provided by someone who works in the medical, architecture, civil, medical, or engineering fields. Accountancy, interior design, advertisement, professional consulting, and any other occupation recognized by the Board under Section 44AA are examples of other facilities.

Film writers, company clerks, and authorized delegates are among the other resources approved under Section 44AA.

It also includes athletes, program organizers, reporters, anchors, umpires and judges, coaches and assistants, physiotherapists, staff doctors, and sports columnists.

Technical Services

It refers to the consulting, technological, or managerial services provided by an employee.

Assemblies, mining, and manufacturing are not considered professional facilities since the money earned falls under the recipient’s head wage.

Non-Compete Fees 

For Section 194J, non-compete fees refer to the payment paid in cash or kind in exchange for an arrangement prohibiting the individual from exchanging any patent, license, contract, trademark, know-how, commercial or business rights, technique, or information that may be used anywhere for manufacturing, production, or any other provisional operation.

Royalty

For this section, royalty refers to payment in exchange for:

• Transfer in ownership of a patent, an invention, a magic formula, a blueprint, a concept, or a trademark.
• Making use of an invention, a blueprint, a patent, and so forth.
• Sharing all details about the use of an invention, copyright, algorithm, or another similar item.
• Equipment is used or has the right to be used for agricultural, research, or commercial purposes.
• Transfer of rights to published works, experimental discoveries, documentaries, or videotapes for radio broadcasting, with little allowance for their sale, presentation, or dissemination.

Specific Cases

TDS deduction is also available under Section 194J in the following cases, as determined by the department’s case laws and circulars:

• In hospitals, medical services are given.
• Film artists owe publicity companies professional fees.
• Amount paid to management firms and HR consulting firms.
• Companies pay registrars to exchange their data.

Consequences of Non-deduction or Late Deduction

Below are the repercussions of failing to deduct TDS or failing to pay TDS to the income tax authorities after it has been deducted:

Disallowance of Expenditure

• When measuring benefit or expense in the year in which the cost is claimed, 30% of the expenditure would be disallowed.
  
  
• In the year in which TDS is withheld and billed to the income tax authority, the disallowed spending will be recovered.

Interest on Deduction Failure

• Failure to Deduct TDS: 1% per month/part of a month from the day such tax was supposed to be deducted before the date of actual deduction.
  
  
• Failure to Pay or Deposit TDS- The taxpayer refused to pay or deposit the withheld TDS to the income tax department after it was deducted. From the day on which the tax was withheld before the date of payment to the state, the interest rate will be 1.5% a month/part of the month.