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Professional fees or technical services fees is an important and most common type of payments that a business entity has to make. Some of the professional fees examples are are fees paid to a lawyer, architect, chartered accountant, doctor, engineer, interior decorators, advertisers, etc. Technical services include taking technical, managerial, or consultancy services. All such type of payments made to the residents is covered under section 194J.

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

Here, you will be informed about the updates and a comprehensive rundown of Section 194J under TDS. You’ll also find detail on the applicability, TDS rate under Section 194J, and much more.

Amendments in TDS Section 194J From the Finance Bill 2020

Section 194J under TDS has been amended as part of the Finance Bill 2020, which will take effect on April 1, 2020. Let’s take a peek at the Finance Bill 2020 amendments.

TDS will be withdrawn at a rate of 2% in the case of payments for specialized services (not being skilled services) and up to 10% in all other cases under Section 194J.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

Invest in elss funds
Particulars Rate of Tax Deducted At Source
The payee is engaged in the business of operation of the Call Centres (effective from 1st June 2017) 2%
Fees for technical services. (the technical fees is not a professional royalty where royalty is in nature consideration for sales, distributions, or exhibitions of the cinematographic films) (which is effective from 1st April 2020) 2%
Royalty is in the nature of consideration for sales, distributions, or exhibitions of cinematographic films 10%
Fees paid for professional services 10%
The payee fails furnish of PAN 20%

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

The 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 percent a month/part of the month.

Section 194J – FAQs

Q1. How to verify tax deducted under 194J?

You can check your TDS data by getting Form 16 from the deductor or using TRACES or the income tax efiling page to get Form 26AS.

Q2. What is section 194J?

TDS is expected to be deducted from any individual who pays payments to any resident person for listed facilities, according to Section 194J. TDS, however, is to be withheld at a rate of 10% until the volume of payment in a year reaches Rs.30,000/-.

Q3. When is Section 194J not applicable?

The following are the exceptions to the applicability of section 194J:

When an agent or HUF makes a payment for personal reasons only.

Where a charge is given to a contractor or subcontractor who is not a member of the United States.

Where the gross payout (either in one go or over the financial year) does not surpass Rs. 30000.

Q4. How to claim TDS under section 194J?

If the TDS is excluded under section 194J and the payee’s gross net income for the year is less than the taxable income, the payee can demand a refund of the TDS by filing an income tax return.

Q5. Is TDS applicable on legal charges?

Yes, TDS is levied on legal fees if the total sum reaches INR 30,000 in a given fiscal year.

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