What is Section 194J?
Section 194J deals with the deduction of tax at source (TDS) on fees for professional or technical services. It requires the payer to deduct a percentage of the payment made to resident professionals or technical service providers as tax and remit it to the government. This helps in advance tax collection and compliance.
Applicability:
- Applies to payments made to resident individuals, Hindu Undivided Families (HUF), firms, companies, or any other entities for professional or technical services.
Scope of Services:
- Professional Services: Includes legal, medical, engineering, architectural, accounting, consultancy, interior decoration, Film Artist and advertising services as notified u/s 44AA
- Technical Services: Involves specialized knowledge and skills in technical, managerial, or consultancy domains.
TDS Rates under Section 194J:
- Fees for technical services (non-professional): 2%
- Royalty for sale, distribution, or exhibition of cinematographic films: 2%
- Professional services or other royalties: 10%
- Non-furnishing of PAN by the payee: 20%
- The payee is engaged in the business of the operation of the Call Centre onlyÂ
(effective from 1st June 2017): 2%
Threshold Limit:
- TDS is deducted only if the payment exceeds Rs. 30,000 in a financial year for each category (professional services, technical services, royalties).
When to Deduct TDS:
- TDS must be deducted at the time of crediting the sum to the payee’s account or during actual payment (whichever is earlier).
Meaning of Important Terms:
- Professional Services: Services provided in legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, or advertising professions.
- Technical Services: Managerial, technical, or consultancy services, excluding construction, assembly, mining projects, or salary payments.
- Royalty: Payments for the use of patents, trademarks, designs, literary or scientific works, and other intellectual properties.
Applicability to Individuals and HUFs:
- Section 194J doesn’t apply if the individual or HUF’s gross receipts do not exceed specified limits (Rs. 1 crore for business and Rs. 50 lakhs for the profession).
Example of TDS Calculation under Section 194J:
1) Suppose a company “ABC Consultants” pays Rs. 40,000 to a legal firm “Legal Experts LLP” for legal services on 6 April 2025
- Gross Payment: Rs. 40,000
- TDS Rate: 10%
- TDS Amount: 40,000 × 10% = Rs. 4,000
Since the payment exceeds Rs. 30,000, TDS is deducted on the entire amount.
2) Suppose a company “ABC Consultants” pays Rs. 10,000 to a legal firm “Legal Experts LLP” for legal services on 2 April 2025, because it did not exceed limit of Rs.30000 then no need to deduct TDS.
After that on 8th June 2025 Legal Experts LLP raised a Invoice of Rs. 50000/- then TDS to be deducted as below
- Gross Payment: Rs. 60,000 (50000+10000)
- TDS Rate: 10%
- TDS Amount: 60,000 × 10% = Rs. 6,000
- Payment to be made to Legal Experts LLP: 50000-6000= 54000
Since the payment exceeds Rs. 30,000, TDS is deducted on the entire amou
Frequently Asked Questions (FAQs):
What kind of payments fall under Section 194J?
- Payments for professional services (legal, medical, engineering, etc.) and technical services (designing, consultancy, etc.).
Who is liable to deduct TDS under Section 194J?
- Any person or entity making payments for professional or technical services.
Is TDS deductible on the gross amount or net of taxes?
- TDS is deductible on the gross amount, excluding GST.
Are there any exemptions under Section 194J?
- No TDS if the annual payment to a payee doesn’t exceed Rs. 30,000.
What if the payee doesn’t provide their PAN?
- TDS is deducted at 20% if PAN is not provided.
Is GST included in TDS calculation?
- No, TDS is calculated on the payment amount excluding GST.
Can there be non-deduction or lower deduction of TDS?
- Yes, the payee can apply for a certificate from the Assessing Officer for non-deduction or lower deduction of TDS based on estimated income.
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