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Section 194J – Fees for Professional or Technical Services

Updated on :  

08 min read.

The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself. It also eases the taxpayer’s burden of paying tax when it is time to file their income tax returns. That is because, they get credit for the taxes deducted at source.

One of the most important and common type of payments that a business entity makes is towards professional fees or fees for technical services. Some illustrative examples of professional fees are fees paid to a lawyer, doctor, engineer, architect, chartered accountant, interior decorators, advertisers, etc. Technical services would include the rendering of managerial, technical or consultancy services. Such payments made to residents are covered under section 194J.

Types of payments covered

The type of payments to residents covered under this section are as follows:

  • Professional fees
  • Fees for technical services
  • Remuneration paid to directors excluding salary (For e.g., sitting fees to attend board meetings)
  • Royalty
  • Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business or profession for a specified time and within certain geographical boundaries) or fees paid to not share any technical knowledge or know-how.

Threshold limit for deducting tax

Tax has to be deducted in case the payment is greater than Rs. 30,000 during the year. However, there is no such limit for payments made to a director. The tax will have to be deducted no matter how small the amount.

Persons liable to deduct tax

Every person, who is making a payment in the nature of fees for professional or technical services is liable to deduct tax at source with the following exceptions:

  • In case of an individual or HUF carrying on business: Where his turnover does not exceed Rs. 1 crore during the previous financial year..
  • In case of an individual or HUF carrying on profession: Where his turnover does not exceed Rs. 50 lakh during the previous financial year.

To put it simply, all entities (other than individuals/HUF who are not required to do tax audit in the preceding year) need to deduct tax.

Rate of Deduction of Tax Under Section 194J

  • Any payment covered under this section shall be subject to TDS at the rate of 10%
  • From 1 April 2020, the payment of fees for technical service shall be subject to TDS at the rate of 2%
  • With effect from 01.04.2017, the tax on payments made to operators of call centres shall be deducted at a reduced rate of 2%
  • In case the payee does not furnish his PAN then the rate of deduction would be 20%.

Time of Deduction Under Section 194J

The tax should be deducted at the time of-

  • Passing such entry in the accounts or
  • Making the actual payment of the expense,

whichever earlier.

Examples on TDS on Professional and Technical Services

Mr. Jay has availed professional service from Mr. Veer in F.Y. 2021-22. First payment in April month was Rs. 55000 and second payment in december month was Rs. 22000. Let us check the TDS liability for both the payments
for the F.Y. 2021-22 in three scenarios:

  1. Mr. Jay is not liable for audit u/s 44AB.
  2. Mr. Jay is liable for audit u/s 44AB and he provided has taken service for personal purpose.
  3. Tax audit u/s 44AB is applicable to Mr. Jay in F.Y. 2021-22 and he taken professional service for business purpose.

Case 1
Since Mr. Jay is not liable for Tax Audit u/s 44AB he is not liable to deduct tax while making payment to Mr. Veer.

Case 2
Though Mr. Jay has taken professional service but that was for personal purpose. Hence, no TDS is required to be deducted while making payments for such services.

Case 3
If Tax Audit is applicable to Mr. Jay and he avails the professional services for business purpose, then TDS @10% must be deducted at Rs. 55,000 while making payment or credit in the accounts, whichever is earlier. . This is because the transaction has exceeded the threshold limit of Rs. 30,000.

Similarly, since the transaction amount has exceeded the threshold limit in the financial year, TDS should be deducted for all the payments made to Mr. Veer. Hence, tax shall be deducted at source on second payment of Rs. 22,000 also.

Consequences of non-deduction or late deduction

Not deducting the tax or late deduction of the tax has a two-fold consequence:

  • Disallowance of a part of the expenditure: 30% of the expenditure shall be disallowed in the year in which the expenditure is claimed (taken to the profit and loss account) – however, the 30% disallowed shall be re-allowed in the year in which the TDS is paid to the government. 
  • Levy of interest until date of payment: In case there is a delay in the payment of tax, interest has to be paid along with the TDS to the Government. The rate of interest is determined in the following manner:
    • Where no deduction of tax has been made: Interest shall be payable at 1% per month/part of month from the date on which such tax was required to be deducted up to the date of actual deduction.
    • Where tax has been deducted but not paid to the government: Interest shall be payable at 1.5% per month/part of month from the date on which such tax was deducted up to the date of payment to the government.

Time limit for payment of tax

Non – Government deductorGovernment deductor
Payment made before 1st March7th day from the end of the month7th day from the end of the month
Payment made in the month of MarchApril 30thPayment of tax is made on the date of payment to the payee but the corresponding challan is deposited by the 7th day from the end of the month

Know all about TDS and refer TDS rate chart to know more about TDS rates

Frequently Asked Questions

How can I verify my tax deducted under section 194J

You can verify your TDS details by collecting Form 16 from the deductor or from Form 26AS through TRACES or income tax efiling website.

Payment of remuneration to the company’s director attracts section 194J?

The company’s director provide managerial services. Hence, any sum payable or paid to the director as sitting fees, remuneration or any other sum (other than in the nature of salary) will attract the provisions of section 194J. Managerial services are technical in nature, hence 2% TDS on fees for technical services.

The professional services was of Rs. 10,000 for the first time and for the second time Rs. 50,000 in a financial year. On what amount the TDS should be deducted if the transaction amount exceeds the threshold limit?

Since the limit did not exceed for the first time, No TDS should be deducted at Rs. 10,000. However, the transaction amount exceeds the threshold limit of Rs. 30,000 (for professional services) while making payment for the second time. Hence, TDS shall be deducted at total Rs. 60,000 at the rate of 10%.

Frequently Asked Questions

What is Section 194J under Income Tax Act ?

Section 194J governs the TDS provisions related to specified services. Any person paying fees to any resident person for these specified services (professional, technical, etc) is required to deduct TDS under Section 194J.

Who is liable to deduct TDS under Section 194J ?

Any person, except individual and HUF ( individual and HUF will be liable only if they are liable to audit under Section 44AB), who makes payment to a resident for any professional or technical services is required to deduct TDS

What is the limit to deduct TDS under Section 194J ?

TDS is required to be deducted under Section 194J if the payment towards professional or technical services covered under this section is more than Rs.30,000 per annum.

Which services are covered under Section 194J ?

Services covered for TDS deduction under Section 194J are professional services, technical services, royalty, remuneration paid to directors of the company (excluding salary), non-compete fees.

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