TDS Section 194J is a provision in the Income Tax Act 1961 that deals with the deduction of TDS on fees for technical and professional services. The section is getting attention again after the Finance Bill 2020, which has made some revisions to it. The revised version of the section will come into effect from 1/04/2020.
By Section 194J, TDS shall be withheld at a rate of 2% for fees for technical services (which are not professional services) and up to 10% of such costs in all other circumstances.
What is 194J in income tax?
Professional fees or fees for technical services are frequent types of payments that a corporate entity makes.
Fees paid to a lawyer, doctor, engineer, architect, chartered accountant, interior decorator, advertiser, etc. are some typical examples of professional fees.
The provision of administrative, technical, or consulting services falls under the category of technical services. Residents who receive such payments are covered by section 194J.
Types of payments covered
The following types of payments to residents are covered by this section:
- Paying experts
- Directors’ compensation, excluding salary (E.g., sitting fees to attend board meetings)
- Payments in the form of non-compete fees (i.e. fees paid to refrain from engaging in any profession or business for a certain period and within specific geographic restrictions) or fees paid to refrain from disclosing any technical information or know-how.
- Technical service fees
Tax Reduction Rate Under Section 194J
|Payment Type||Tax deduction rate|
|Any payment related to technical service||2%|
|Payments provided to call centre operators||2%|
|A royalty is paid when a cinematic film is sold, distributed, or screened.||2%|
|All additional compensation covered by this section||10%|
|Payee does not provide their PAN||20%|
Time of tax deduction under Section 194J
- The deduction must be made, depending on which occurs first, when the money is credited to the payee’s account when it is paid in cash, when a check or draft is issued, or when it is paid using any other method.
- When a sum is credited to any account, whether it is referred to as a suspense account or by any other name in the books of accounts of the person who is required to pay the sum, the crediting is considered to be a credit to the payee’s account, and tax must be subtracted as necessary.
Consequences of not deducting or deducting TDS late
There are two cases:
- When someone is subject to reducing TDS, they do not reduce TDS.
- A person who has reduced TDS fails to pay the full or part of the tax to the administration’s credit after having TDS deducted from their payment.
The provisions of Section 201 of the Income Tax Act apply in the circumstances of failures listed above, and interest is due by that section.
- From the day the TDS was reducible until the date the TDS was actually reduced, the interest of 1% will be charged for each month or portion of a month.
- For each month or portion of a month between the date that TDS was decreased and the date that TDS was actually credited to the administration, an interest of 1.5% will be charged if TDS is not paid.
FAQs about Section 194J TDS
What is the 194J limit?
The highest amount allowed under Section 194J, which applies to each item or payment separately, is Rs. 30,000.
Who is liable to deduct TDS under 194J?
Everyone, excluding an individual or HUF, who is required to make any of the following payments to a resident is required to withhold TDS by Section 194J:
- The cost of technical and professional services, or
- Any compensation for a director of a firm, including fees and commissions, other than royalties or payments on which taxes are deductible under Section 192
- Non-compete u/s. 28 fees (VA)
Is GST applicable on 194J?
Yes, below are the details:
Section 194J: Any amount paid as below will have a GST rate of 18%.
- Professional service fees
- Technical service fees
What is the technical service fee?
The phrase "technical services fee" refers to any type of payment made in exchange for the provision of managerial, technical, or consulting services, including the employment of technical or other staff.
What is the difference between 194J & 194jb?
Technical service fees are subject to TDS deduction under Section 194J(a) of the Income Tax Act, while professional service fees are subject to TDS deduction under Section 194J(b) of the Income Tax Act.