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Section 194J of Income Tax Act – 2023 – TDS on Professional Fees/Technical Fees

The following points shall be covered under this Article “Section 194J of Income Tax Act – TDS on Professional Fees/Technical Fees” :

Section 194J of Income Tax Act, 1961
Timing of deduction of TDS
Rate of TDS
No deduction of Tax under section 194J of Income Tax Act
TDS deduction by Individual/ HUF
TDS on GST
TDS Rate in case of No PAN
Surcharge and HEC

Section 194J of Income Tax Act, 1961

Section 194J provides for deduction of TDS by a resident payor or a non-resident payor, to a person who is a tax resident of India, for any of the following sums :

Fees for professional services. For the purpose of this Section, “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 of Income Tax Act, 1961 or this section; or
Fees for technical services; or
Royalty; or
Sum referred to in section 28(va) , i.e, payment for non-compete fees , or not sharing information or know how etc ; or
Remuneration or Fees or Commission paid to a Director of a company , except where the Director is an employee, and tax is deductible u/s 192 .

Who can be Payor?	Resident/Non Resident
Who can be Payee?	Resident
What is the Rate of Tax deduction	10% or 2%
What is the timing of deduction of TDS	Date of credit or Date of payment whichever is earlier
What is the threshold limit	Not exceeding Rs.30,000/-(No exemption limit in case of remuneration, fees or commission paid to director) (Enroll in our TDS Course)
Whether Issue of Form 16A is compulsory?	Compulsory
What is the due date for issue of Form 16A	With in 15 days of filing of TDS return
Applicability on Government
AO’s Certificate under section 197	Can be obtained
Applicability of Section 206AA	Yes
Applicability of Section 285BB (Annual Information system)	Applicable
Applicability on person not covered under section 44AB	Not applicable
Which TDS Return is applicable under Section 194J	26Q
Applicability on payments made in the nature of personal use	Not applicable (Enroll in our TDS Course)
Applicability in case of transaction charges paid by stock broker	Not applicable
Applicability in case of Third party Administrator	Applicable (Enroll in our TDS Course)
Applicability on payment to cable operator	Not applicable
Applicability on technical services	Applicable
Applicability in case of Royalty	Applicable
Applicability on Non Compete fee	Applicable
Applicability on services provided by Umpire	Applicable

Deduction of TDS by an Individual or HUF

An Individual or HUF , who pays any of the above-mentioned amounts, shall not be liable to deduct TDS under this section, if he/ it was not liable to tax audit during the FY immediately preceding the FY in which professional fees, technical fees, royalty, etc. is credited/ paid. For example, if the payment is made during FY 2022-23, the liability to tax audit would be considered for FY 2021-22. during the FY

Section 28(va) covers the sum for

not carrying out any activity; or
not sharing any know-how, patent, copyright, trade mark, license, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacturing or processing of goods or provision for services.

Example of few services on which TDS shall be deducted under this section:

Professional or Consultancy fees paid to a Chartered Accountant
Legal fees paid to a Lawyer
Interior decoration fees paid to a person
Fees for purchase of computer software
Fees paid for not carrying out any activity
Commission paid to a non-employee Director

Time of Deduction of TDS under section 194J of Income Tax Act

TDS under section 194J of Income Tax Act shall be deducted at the earlier of the following two occurrences : –

Credit of technical fees or professional fees or Royalty or remuneration to Director or fees for not carrying out any activity to the account of payee; or
Payment in cash or by way of issue of cheque/ draft/ any other mode

Credit of technical fees or professional fees or Royalty or remuneration to Director or fees for not carrying out any activity to any account in the books of the account of payor, shall be deemed to be credit of such sum to the account of the payee.

Example 1:

Ram availed legal services of Rs. 1,20,000 from a lawyer on March 21, 2022 and the payment was also made on the same date. On which date the TDS shall be deducted ?

Solution:

TDS shall be deducted on March 21, 2022.

Example 2:

Shyam availed decoration services of Rs. 80,000 from an interior decorator during the FY 2021-22. Invoice was raised by interior decorator to Shyam on February 10, 2022. However, Shyam made the payment on March 16, 2022. On which date the TDS shall be deducted ?

Solution:

TDS shall be deducted on February 10, 2022, since the event of credit is the earlier of the two events and took place on February 10, 2022.

Example 3:

Sita availed consultancy services amounting Rs. 1,50,000 from a Chartered Accountant during the FY 2021-22. She booked the fees for consultancy services in her books of accounts in Suspense account on March 30, 2022 and the payment was made on April 04, 2022. Whether TDS on professional fees needs to be deducted in this case, if yes, on which date ?

Solution:

TDS shall be deducted on March 30, 2022, since credit to a suspense account is an event that triggers deduction of TDS.

TDS Rate under section 194J of Income Tax Act

TDS shall be deducted @

2% of fees for technical services (not being a professional services), or royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films ; and
10% of such sum in other cases

Example 1:

Arjun paid professional fees of Rs. 40,000 to a chartered accountant on December 31, 2022. How much TDS on professional fees shall be deducted u/s 194J ?

Solution:

TDS shall be deducted @ 10% on Rs. 40,000 i.e. Rs. 4,000.

Example 2:

Pradeep paid royalty of Rs. 2,00,000 to an Indian resident on January 18, 2022 in respect of purchase of computer software. How much TDS shall be deducted u/s 194J ?

Solution:

TDS shall be deducted @ 10% on Rs. 2,00,000 i.e. Rs. 20,000.

Example 3:

ABC Pvt. Ltd. paid Rs. 10,00,000 to XYZ towards fees for technical services (not being a professional services) on February 06, 2022 . How much TDS shall be deducted u/s 194J ?

Solution:

TDS shall be deducted @ 2% on Rs. 10,00,000 i.e. Rs. 20,000.

No TDS under section 194J of Income Tax Act

Following are the cases, where no TDS shall be deducted u/s 194J:

Where the amount or aggregate of amounts credited/ paid does not exceed Rs. 30,000 during the FY.
Individual / HUF, whose total sales, gross receipts or turnover from the business or profession carried on by him does not exceed the monetary limits specified u/s 44AB(a) (Rs. 1 crore) or 44AB(b) (Rs. 50 lakhs) during the FY immediately preceding the FY in which such sum is credited/ paid.
Fees for professional services paid by individual or HUF for their personal purposes.
Payment by any person for acquisition of computer software from another resident person, where
- Software is acquired in a subsequent transfer and transferor has transferred the software without any modification
- Tax has been deducted under section 194J of Income Tax Act on payment of any previous transfer of such software, or u/s 195 on payment for any previous transfer of such software from a non-resident
- Transferee obtains a declaration from transferor that the tax has been deducted under clause (b) along with the PAN of the transferor.

Example 1:

Sudhanshu paid decoration charges of Rs. 30,000 to an interior decorator on September 11, 2021 in respect of interior decoration services availed for business. How much TDS shall be deducted u/s 194J, assuming that Sudhanshu was liable to tax audit during PY 2020-21 ?

Solution:

No TDS shall be deducted in this case, since the amount does not exceed Rs. 30,000.

Example 2:

Amit paid consultancy fees of Rs. 4,00,000 to a chartered accountant on January 01, 2022. How much TDS on professional fees shall be deducted u/s 194J, assuming that Amit was not liable to tax audit in any of the PYs ?

Solution:

No TDS shall be deducted in this case, since Amit was not liable to tax audit during the PY 2020-21. And as per the provision, an individual or HUF is liable to deduct TDS u/s 194J, only if he or it was liable to tax audit during the PY immediately preceding the PY in which such sum is credited / paid.

Example 3:

Anirudh received legal services amounting Rs. 1,10,000 from a lawyer on March 11, 2022 in respect of his divorce . How much TDS shall be deducted u/s 194J ?

Solution:

No TDS shall be deducted in this case, since the services have been received by Anirudh for his personal purpose.

Example 4:

ABC Pvt. Ltd. has purchased a software amounting Rs. 80,00,000 from XYZ India Ltd. and XYZ India Ltd. has imported the software from XYZ USA. How much TDS shall be deducted u/s 194J by ABC Pvt. Ltd., if XYZ India Ltd. has deducted the TDS at the time of import of software from XYZ USA ?

Solution:

No TDS shall be deducted in this case, since the tax has been deducted u/s 195 in case of previous transfer of software. However, following conditions need to be fulfilled for non-deduction of tax by ABC Pvt. Ltd. :

No modifications have been made by XYZ India Ltd. in the software after import; and
Declaration has been provided by XYZ India Ltd. to ABC Pvt. Ltd. that it has deducted TDS u/s 195 at the time of payment to XYZ USA.

TDS deduction by Individual or HUF under Section 194J of Income Tax Act

TDS under section 194J of Income Tax Act shall be deducted by an individual or HUF, if the total sales, gross receipts or turnover from the business or profession carried on by him exceeds the monetary limits specified u/s 44AB(a) (Rs. 1 crore) or 44AB(b) (Rs. 50 lakhs) during the FY immediately preceding the FY in which such sum is credited / paid.

In other words, an individual or HUF is liable to deduct TDS u/s 194J, if such individual or HUF is liable to tax audit in FY immediately preceding the FY in which such sum is credited / paid.

Example 1:

Vaishali paid Rs. 32,000 to Aman for not carrying an activity on November 12, 2021. How much TDS shall be deducted u/s 194J, assuming that Vaishali was liable to tax audit during PY 2020-21 ?

Solution:

TDS shall be deducted @ 10% on Rs. 32,000 i.e. Rs. 3,200.

Example 2:

Deepak paid consultancy fees of Rs. 1,00,000 to a chartered accountant on January 10, 2022. How much TDS shall be deducted u/s 194J, assuming that Deepak was liable to tax audit in PY 2020-21 ?

Solution:

TDS shall be deducted @ 10% on Rs. 1,00,000 i.e. Rs. 10,000

TDS on GST

TDS under section 194J of Income Tax Act shall be deducted on invoice value excluding the value of GST (if such value is mentioned separately in the invoice). Circular No. 23/ 2017
TDS shall be deducted on whole of the invoice value (if value of GST is not mentioned separately in the invoice). Circular No. 23/ 2017

Example 1:

Anubhav & Associates rendered professional services to Sumit Pvt. Ltd. during PY 2021-22. The firm charged Rs. 10,00,000 plus Rs. 1,80,000 GST for the services rendered by it. How much would be the TDS on professional fees that shall be deducted u/s 194J, if GST value is mentioned separately in the invoice ?

Solution:

TDS shall be deducted @ 10% on Rs. 10,00,000 i.e. Rs. 1,00,000.

Example 2:

Avinash provided interior decoration services to Tata Pvt. Ltd. during PY 2021-22. Avinash charged Rs. 3,54,000 (including GST) for the services provided by him. How much tax shall be deducted u/s 194J, if GST value is not mentioned separately in the invoice ?

Solution:

TDS shall be deducted @ 10% on Rs. 3,54,000 i.e. Rs. 35,400

TDS Rate in case of no PAN

TDS shall be deducted @ 20% in case payee has not furnished his PAN with the person responsible for deduction tax i.e. deductor.

Example 1:

A lawyer has rendered legal services to CVV India Pvt. Ltd. during PY 2021-22. He charged Rs. 15,00,000 for the services rendered by him. How much tax shall be deducted under section 194J of Income Tax Act, if CVV India Pvt. Ltd. does not provide PAN to the lawyer ?

Solution:

While the regular TDS would have been Rs. 150,000, in the given case, TDS shall be deducted @ 20% on Rs. 15,00,000 i.e. Rs. 3,00,000

Surcharge on TDS and Cess

Surcharge and Health & Education Cess (HEC) shall not be added to the TDS rates.

Example 1:

CVV India Pvt. Ltd. paid commission amounting Rs. 2,33,000 to a Director during PY 2021-22. How much TDS shall be deducted by the company u/s 194J, if the applicable rates of surcharge and HEC are 10% and 4% respectively ?

Solution:

TDS shall be deducted @ 10% on Rs. 2,33,000 i.e. Rs. 23,300, as Surcharge and HEC shall not be added over and above the TDS rate.

Multiple Choice Questions on TDS on Fees for Professional or Technical Services – Section 194J of Income Tax Act

MCQ 1 – TDS on Professional Fees

Shyam Pvt. Ltd. has to make payment under contract to CA firm for professional consultancy amounting to Rs. 1,30,000. Determine the amount of TDS to be deducted on such payment?
(a.) 2,600
(b.) 1,300
(c.) 13,000
(d.) 13,520

Answer

Answer: (c.) 13,000

MCQ 2 – TDS on royalty

ABC Research India Ltd. paid royalty amounting Rs. 5,00,000 to KK India Pvt. Ltd. TDS under section 194J of Income Tax Act shall be _________
(a.) 50,000
(b.) 5,000
(c.) 2,500
(d.) 52,000

Answer

Answer: (a.) 50,000

MCQ 3 – TDS on personal services of an individual

Ankush has taken services of event manager on the occasion of his marriage and he has to make payment of Rs. 1,20,000 to such event manager. Determine the amount of TDS to be deducted by Mr. Ankush, in case he was liable to tax audit in the preceding PY?
(a.) 12,000
(b.) 2,400
(c.) 1,200
(d.) Nil

Answer

Answer: (d.) Nil

MCQ 4 – TDS on call centre business

Raxmann India Private Ltd. has taken services of call centre for its business and it has to make payment to BPO amounting to Rs. 1,50,000. Determine the amount of TDS to be deducted on such payment?
(a.) 15,000
(b.) 3,000
(c.) 1,500
(d.) Nil

Answer

Answer: (b.) 3,000

MCQ 5 – TDS on Director’s remuneration or Director’s salary or Director’s sitting fees

Which of the following payments made to a Director are liable for deduction of tax under section 194J of Income Tax Act?
(a.) Employee Director sitting fees, taxable as Salary
(b.) Non -Employee Director sitting fees
(c.) Both (A) and (B)
(d.) Neither (A) nor (B)

Answer

Answer: (b.) Non -Employee Director sitting fees

MCQ 6 – TDS on software

TSPL has purchased a software from Gama Inc. for Rs. 60,00,000. Determine the amount of TDS to be deducted, assuming the seller has a PAN.
(a.) 6,00,000
(b.) 12,00,000
(c.) Nil

Answer

Answer: (a.) 6,00,000

MCQ 7 – Payments covered under section 194J of Income Tax Act

Which of the following payments are covered under Section 194J?
(a.) Umpire and Referee
(b.) Event managers
(c.) Commentators
(d.) Sports authors
(e.) All of the above

Answer

Answer: (e.) All of the above

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Section 194J of Income Tax Act – 2023 – TDS on Professional Fees/Technical Fees