As per section 194J of Income tax act 1961, a person is required to deduct TDS @ 10% on following payments paid to a resident in excess of Rs. 30,000 during a financial year;
- Fees for professional services; or
- Fees for technical services; or
- Royalty; or
- Non-compete fee as referred under section 28(VA) of income tax act.
Threshold limit of Rs. 30, 000 as specified under section 194J is applicable to each payment separately i.e. applicable independently to each of four items.
With effective from 1st of July 2012, TDS under section 194J is also applicable to remuneration, fees or commission paid to a director of a company which is not considered under the head salary. For this particular payment, threshold limit of Rs. 30, 000 as mentioned above is not applicable.
Section 194J is applicable to all persons who are making above payments during the financial year.
But the provisions of section 194J will not be applicable to an individual or HUF in following cases;
- Where technical or professional fee for above expenses are credited or paid exclusively for personal use of such individual or any member of HUF.
- Where total sales, gross receipts or turnover does not exceed the limits of Rs. 1 crore in cases of business or Rs. 25 Lakhs in cases of profession (i.e. if such individual or HUF is liable to tax audit under section 44AB of income tax act).
Applicability of Section 194J for certain specific cases
TDS deduction under section 194J is also applicable to following cases based on department’s circulars and case laws;
- Payment to hospitals for rendering medical services.
- Advertising agencies making payment to film artist towards professional fee.
- Payment to HR consultancy or recruitment agencies.
- Payment to share registrars by companies
Professional Services or Technical Services or Royalty or Non Compete Fee
What is Professional Fee under section 194J ?
Fee for following professional services will be treated as professional fee under section 194J of income tax act 1961;
- All such professionals as notified for the purpose of section 44AA of income tax act 1961; and
- Sports person;
- Umpires and referees;
- Coaches and trainers;
- Team physicians and physiotherapists;
- Event manager;
- Anchors and sports columnists;
Technical Services considered for Section 194J
Technical services mean any consideration for rendering following services;
But does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head salaries.
For the purpose of section 194J royalty is defined in explanation 2 to section 9(1) (vi) if income tax act. According to this section royalty means consideration for;
- the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
- the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
- the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
- the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
- the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;
- the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
- the rendering of any services in connection with the activities referred above.
Non compete fees for section 194J
Non compete fee for the purpose of section 194J means, any sum received or receivable in cash or kind under an agreement for not sharing any know-how, patent, copyright, trademark, license, franchise or any other business or commercial rights of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services.
It also includes any fee received for not carrying out any activity in relation to any business.
Time Limit to deposit tax deducted under section 194J
In case the deduction is done by or on behalf of the government then TDS deducted under section 194J has to be deposited on the same day.
If the amount is credited or paid on the last day of the financial year i.e. 31st march then TDS has to be deposited within 2 months from the end of the financial year in which it is credited or paid.
The assessing officer on your application may allow deducting of TDS in special cases on quarterly basis i.e. 15th July, 15th October, 15th January and 15th April.
TDS at a lower rate under section 194J
Under section 197, the payee (i.e. the person receiving such insurance commission) can apply in form no: 13 to the assessing officer for lower deduction of TDS (i.e. lower than the rate specified under section 194J ).
If the assessing officer is satisfied then a certificate will be issued to the assessee for lower deduction of income tax. Such certificate has to be produced to the concern person deducting TDS under section 194J for lower deduction and the person deducting TDS has to deduct it at such lower rate and for the period as stated in the certificate.
FAQs on Section 194J – Professional Fee or Technical Fee
Company X has to pay Rs. 25, 000 toward professional fee and Rs. 28, 000 as fee towards technical services to one single person. Is it required to deduct TDS under section 194J as the total sum is Rs. 53, 000 which is more than Rs. 30, 000?
No, the threshold limit of Rs. 30, 000 is applicable individually to the items that are specified under section 194J of income tax act 1961.
Professional fee and fee for technical services are two separate items specified under section 194J. So the limit of Rs. 30, 000 will be applicable to each item separately instead of taking both together.
By applying the above provision of section 194J, neither professional fees nor the fee paid for technical charges are exceeding the limit of Rs. 30, 000 individually. So section 194J will not be applicable for deducting TDS.