Get details about deduction of TDS on fees for professional and technical services, royalties, and other income sources
Section 194J of the Income Tax Act, 1961, deals with the TDS on payments made in the form of professional or technical fees, royalties, remuneration fees, and commissions. As per Sec. 194J provisions, an individual has to deduct the tax either at the rate of 2% or 10% based on the income category. Any person, including an individual and HUF in certain cases, whose total turnover exceeds the threshold, is required to make TDS deductions.
To effectively comply with Section 194J, it is important to first understand the specific types of payments on which TDS must be deducted. As per Section 194J, taxpayers need to deduct TDS in case the below-mentioned payments are made to a resident in a particular financial year:
Fees for Professional Services
Payments made for services rendered by professionals such as doctors, lawyers, accountants, engineers, and other specified professions. These services are recognized under the Income Tax Act and require TDS deduction when paid to residents.
Fees for Technical Services
These are payments for managerial, technical, or consultancy services, excluding salary. TDS must be deducted on such payments to residents when they exceed the specified threshold.
Remuneration to a Company (other than those deductible under Section 192)
This covers payments like director’s fees or commissions to companies, except those treated as salary under Section 192. Such payments attract TDS under Section 194J if not covered elsewhere.
Royalty
Royalty refers to payments for the use of intellectual property, patents, trademarks, or copyrights. TDS is applicable on royalty payments made to residents as per Section 194J.
Income Generated Under Section 28(va)
This includes payments for non-compete agreements or for transferring rights that are not directly related to a business or profession. Such income is subject to TDS under Section 194J when paid to residents.
You need to know the following definitions to understand the applicability of Section 194J:
Professional services
It is the individual's services for carrying on legal, medical, engineering or architectural professions. These include the following and any other occupation approved by the Central Board of Direct Taxes (CBDT) u/s 44AA:
Advertising
Accountancy
Technical Consultancy
Interior Decoration
Technical services
As per the IT rules, ‘technical services fees’ mean managerial, consultancy, and technical services but do not include salary payments. The following are not considered technical services:
Mining
Mining activities involve extraction and physical processing of minerals, which are operational and manual tasks rather than managerial, technical, or consultancy services rendered by individuals. Therefore, mining is excluded from technical services as it does not require specialized technical expertise or advisory input.
Assembly
Assembly refers to the process of physically putting together parts or components, which is a mechanical or manufacturing process rather than a service involving technical knowledge or consultancy. Since it lacks the element of expert advice or managerial input, assembly is not treated as a technical service.
Construction Services
Construction services primarily involve on-site building and infrastructure development activities, which are execution-based and do not constitute managerial, technical, or consultancy services. Hence, construction is excluded from technical services because it is a project execution activity rather than a service requiring specialized technical skill or advice.
Any individual paying for technical or professional services must deduct TDS. However, the entities listed below are not expected to deduct tax at source on such payments:
Threshold for Business Turnover Exemption
If a HUF or an individual has a business and the turnover is under ₹1 Crore during the last financial year.
Threshold for Professional Turnover Exemption
If a HUF or an individual practises a profession and the turnover is under ₹50 Lakhs during the last financial year.
Simply put, all entities (other than an individual/HUF who are not expected to do a tax audit the previous year) will have to deduct TDS while paying technical service or professional fees.
The tax has to be deducted if the technical and professional service payment is more than ₹30,000 for that particular year.
This maximum limit of ₹30,000 is applicable for each payment or item independently. However, there is no such limit for payments (fees, remuneration, or commission).
Here is an example to help you understand the applicability of Section 194J TDS limit. A company named ABC made the following payments to Mr. X for his services:
Particulars |
Payments |
Payment for Professional Services |
₹15,000 |
Payment for Technical Services |
₹28,000 |
Total Payment to Mr. X |
₹43,000 |
Since the Section 194J limit applies independently for each category, ABC company will not be liable to deduct TDS while paying Mr. X. In case the payment exceeds the limit, the company will have to deduct tax when (whichever is earlier):
Passing those payment entries into the accounts
While making the payment of the expense incurred
Check the following table to know the due dates for making TDS deposits:
|
Deductors who are not the government |
Deductors from the government |
Payments that are made before 01 March |
7th day from the end of the month |
7th day from the end of the month |
Payments that are made in March |
30 April |
Tax payment is made during the day of technical or professional payment to the payee. The challan is to be deposited by the 7th day from the end of March. |
Under Section 194J, TDS rates apply to payments for professional technical services. The rates for deduction are as below:
Payment Nature |
TDS Rate u/s 194J |
Technical services fee payment |
2% |
Call centres fee payment |
10% |
Royalty paid for the screening, distribution and sale of a movie |
2% |
Other payments |
10% |
In case the individual fails to provide PAN information |
20% |
Frequently Asked Questions
What are professional fees?
Professional fees are payments made to individuals specialising in specific arts, science, and commerce fields. It includes fees paid to professionals like doctors, lawyers, advertisers, chartered accountants, etc.
How can I claim TDS deducted under Section 194J?
You can claim TDS u/s 194J if your net income is lower than the total taxable income. To get a refund, you will need to file your ITR.
What is the deduction limit under Section 194J of the Income Tax Act?
The entity paying for the service is liable to deduct TDS if the payment towards technical or professional services goes over ₹30,000 per annum.
Can I pay for professional services without deducting TDS?
No, it is mandatory to deduct TDS on professional fees if the payments exceed the Section 194J limit.
What are the implications of delayed or non-deduction of TDS?
In case of non-payment of TDS within the due date, around 30% of the expense will be disallowed in a financial year in which the expense is claimed (taken to the P/L account).
An interest of 1% each month has to be paid in case the TDS was made but not deducted. If no tax is deducted, the interest will be 1.5% each month.
What are Sections 194JA and 194JB of the Income Tax Act?
Section 194JA of the Income Tax Act requires payers to deduct TDS at the rate of 2% on fees for financial and technical services. As per Section 194JB of the Income Tax, payers need to deduct 10% on other compensations.
What is the TDS limit under Section 194J?
Under Section 194J of the Income Tax Act, TDS is deducted if payments for professional or technical services exceed ₹30,000 in a financial year. The TDS rate is 10% for professional services and 2% for technical services, royalties, and other payments.
What is the difference between Section 194C and 194J?
Section 194C covers contractor payments with a TDS rate of 1%-2% and a higher threshold. Section 194J applies to professional and technical services with a TDS rate of 10% for professionals and 2% for technical services, with a ₹30,000 annual threshold.
How to report income under Section 194J in ITR?
Income under Section 194J, such as fees for professional or technical services, should be reported under ‘Income from Business or Profession’ in your ITR. Use the ITR-3 form, report gross receipts and TDS deducted, and claim TDS credit using details from Form 16A.
What are the benefits of Section 194J?
Section 194J ensures TDS on fees for professional and technical services, promoting timely tax collection and accurate tax liability calculation. It simplifies compliance for payees by deducting tax before payment and enhances transparency in financial transactions.
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