Professional/Technical fee is one of the most important types of payment that the business entity makes. If the entities are making any payment in respect of such fee and if it exceeds the threshold limit of INR 30,000 then the TDS will be deducted u/s 194J.
What is Section 194J?
TDS u/s 194J needs to be deducted by a deductor other than an individual or a HUF (not liable to tax audit) @ 10% on any amount paid or payable to any person which is in excess of Rs. 30,000 as:
- Fees for professional services
- Fees for technical services
- Any remuneration or fees or commission by whatever name called paid to a director ( other than salary)
- Any sum referred to in clause (VA) of section 28.
What is the meaning of Professional fees?
Professional fees are paid in lieu of services provided by a person in course of carrying on legal, medical, engineering, or architectural profession or the profession of accountancy or interior decoration or technical consultancy or advertising, or such profession as is notified by the Board for the purpose of section 44AA.
Fees for Technical Services mean fees paid for rendering any managerial, technical, or consultancy services.
When to deduct TDS under section 194J?
TDS shall be deducted at the time of:
- Date of Payment
- Date of Invoice
Whichever is earlier
It shall be noted that if the payee credits such amount to the “suspense account” or any other account by whatever name called, it shall be considered as deemed payment, and also TDS is required to be deducted on such credit.
Rate of TDS u/s 194J
TDS was applicable at 10% on all the services. However, from FY 2020-21 onwards, the following changes have been made:
TDS shall be deducted at the rate of 20% in the case where the payee does not provide the PAN.
Who is exempt from deduction of TDS u/s 194J?
Section 194J shall not apply in the following cases :
- If the aggregate amount of services received during a financial year does not exceed Rs 30,000.
- If the payer is an Individual or HUF. However, the section states that if the total sales, gross receipt, or turnover from the business or profession exceeds the monetary limit provided u/s 44AB ( i.e 1 cr in the case of business and 50 lakhs in the case of the profession) both the entities shall be required to deduct TDS on the amount paid.
- Similarly, section 194J also states that no individual or HUF shall be required to deduct TDS on the number of services acquired if they are consumed for a personal purpose/home consumption.
EXAMPLE 1: Firm ABC paid INR 20,000 as fees for professional fees and INR 20,000 as fees for technical services to Mr. Akash. Here firm ABC is not liable to deduct the TDS of Mr. Akash as an individual payment of each item that doesn’t exceed INR 30,000.
EXAMPLE 2: Mr. Jay paid INR 50,000 to Mr. Ram as a professional fee. As the aggregate limit of INR 30,000 has been exceeded, Mr. Jay is liable to deduct TDS @10% on the total amount of INR 50,000.
The payer/deductor is liable to deduct tax u/s 194J of the Income Tax Act and file a TDS Return in Form 26Q on a quarterly basis.
TDS deduction u/s 194J is also applicable to the payments made to hospitals, HR consultancy, Recruitment agencies, and advertising agencies.
As per section 197, the payee can apply in form no. 13 to his Assessing Officer (AO) for a lower deduction of TDS ( lower than the rate specified under section 194J).
If the AO is satisfied with the justification provided by the payee, he will issue a certificate for a lower deduction of income tax. Such a certificate has to be produced to the deductor for a lower rate of deduction. The payee can take the benefit of a lower rate for the period stated in the certificate.
Rs. 30,000 is the limit of section 194J. The limit is calculated on an aggregated basis against the professional/technical services provided.