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TDS on Professional Fees u/s 194J : 7 IMP points you should know

TDS u/s 194J is applicable while making payment for professional or technical fees. In this article, we will understand who should deduct TDS u/s 194J, threshold limit for  deduction  TDS u/s 194J, rate of TDS u/s 194J, effects of non deduction of TDS.

 

TDS on professional fees/ technical fees u/s 194J:

 

Professional fees/technical fees meaning:

Professional service means legal service, medical service, engineering, architectural service, accounting service, technical consultancy, interior decoration service, advertising service or such other profession notified by the Board for the purposes of section 44AA.

Royalty is also covered under section 194J. Royalty means consideration for the transfer of any right in respect of patent, invention, model, design, secret formula, trademark or similar property.

 

Who should deduct?

Following persons is required to deduct TDS on professional service / technical service :

  1. Individual/ HUF whose books of account are required to be audited u/s 44AB (a)/(b) in the immediately preceding year.
  2. Person other than Individual / HUF. (Means partnership firm, corporate, LLP, AOP, BOI )

What is rate of TDS u/s 194J:

TDS rate is 10% on amount paid including reimbursement of expense.

 

Where not deduct TDS?

In following situations, TDS should not be deducted :

  1. When individual or HUF has made payment for professional fees/ technical fees for personal purposes. Example, when individual has availed service of engineer for construction of his residential house. In this case, as payment is for personal purpose, TDS is not required to be deducted u/s 194j. But suppose, individual has paid the construction fees to engineer for construction of office, TDS is required to be deducted u/s 194J. Remember that this relaxation is not available to person other than individual or HUF.
  2. When aggregate of the amounts of such sums credited or paid during the financial year does not exceed Rs. 30000. Remember that there is no threshold for director’s fees.

 

TDS on service tax:

TDS should be deducted on amount excluding service tax as per circular no. 4/2008. Read our article TDS on service tax for further insight about this point.

 

TDS on remuneration to Director:

Financial bill 2012 has amended section 194J  that tax is required to be deducted on the directors remuneration, which is not in the nature of salary, at the rate of 10% of such salary.

Non deduction will be lead to interest and penalty and dis allowance of expense under income tax act.

Interest on late deduction / payment of TDS:

If you have not deducted tds on time, you are liable to pay interest at 1% p.m. or part of month for delay of deduction and 1.5% p.m. or part of month for delay of payment.

Example:

Mr. Jay is liable to make payment to Mr. Sujal for professional service of Rs. 32000 on 22/4/2015 and Rs. 10000 on 1/6/2015.  He has made full payment of Rs. 32000 on 22/4/2015  and  has deducted and paid Rs. 4200 ( TDS on Rs.42000)  on 1/6/2015 and paid Rs. 5800 on second payment.

In above case, Mr. Jay is liable to pay interest for late deduction and payment of TDS u/s 201 (1A).

Late deduction of TDS on Rs.3200 at 1% * 2 month = 64

Late payment of TDS on Rs.3200 at 1.5% *2 month = 96

Read my article interest on delay on deduction and payment of TDS for further clarification.

 

Example of calculation of Tax Deducted at Source u/s 194J:

 

Mr. Smart has availed professional service from Mr. Superb in F.Y. 2014-15. First payment was Rs. 35000 and second payment was Rs.12000. We will check TDS deduction liability in following cases in above situation.

 

Mr. Smart is not liable for audit u/s 44AB in F.Y. 2013-14.

Mr. Smart is liable for audit u/s 44AB in F.Y. 2013-14 and he availed professional service for personal purpose.

Mr. Smart is liable for audit u/s 44AB in F.Y. 2013-14 and he availed professional service for business purpose.

 

First Case:

As Mr. Smart is not liable for audit for previous financial year so he is not liable for deduction of TDS while paying Mr. Superb.

Second case:

As Mr. Smart has paid sum for personal purpose, he is not liable for TDS deduction while paying Mr. Superb.

Third case:

As Mr. Smart is liable for audit for previous financial year and the service is for business purpose, he needs to deduct TDS while paying Mr. Superb.

First payment is Rs. 35000 ( more than Rs.30000 threshold ) so He is required to deduct TDS of Rs. 3500(at 10% of Rs.35000. )

Second payment is Rs. 10000. TDS will be Rs.1000 (10% of Rs.10000).

I hope now you are clear about all points regarding TDS on professional service / technical service / directors remuneration u/s 194J. Share this post on social media to encourage me to write more and more articles on taxation matters.

 

 

 

 

 

11 Comments

  1. By Tapash Biswas

    We are providing Security Services in PAN India and we purchase Uniform from Registered/ non registered vendors.Is it necessary to deduct TDS from the bills ? Please advice

    • No, TDS is not required to be deducted while making purchase.

      • By Tapash Biswas

        Thanks , Mam

  2. By Rishabh jain

    Nice article :)

  3. By Sivaraman

    Dear sir,
    As per circular No 715 dated 08.08.1995 and No 720 dt 30.08.1995

    No TDS on reimbursement part – if seperate bill is provided.
    TDS applicable on reimbursement part – if seperate bill not provided.

    If the service provider raised only one bill and seperately mentioned Service charge and Reimbursemet,
    Are we still liable to deduct TDS on reimbursment? The service providers gives all supportings for Reimbursement part.

    Circular says – Seperate bill and No seperate bill. Circular does not says about seperate figure in same bill Please clarify

    Regards
    Sivaraman,AR

  4. By Paul Albert Joseph

    I have entered into an agreement with Builder who is constructing my house. Agreement is made of Rs. 16 lakh. I am arranging Rs. 4 lakh from my side & Rs. 12 lakh have been approved [not yet asked for disbursement]. Builder is saying to make cash payment and he will supply all bills like labour,steel,sand,aggregate,door, window,electrical,etc. Can it be possible to make payment in cash instead of cheque. Kindly let me know so that i may not be questioned by Income Tax Department.

  5. By Rajhav Bajaj

    For such income earned i.e fees / payment received under 194J, which ITR form shall be most applicable?
    Can ITR-4S be filed?

  6. By Shinitha K K

    Dear madam,

    Ours is a small software services private limited company (< 10 employees). We would like to hire a contract employee for our project for couple of months (or may be extended for long term). Since we don't know for how long the contract employee will work with us, we would like to deduct TDS and Professional Tax on every month. Our question is whether we can deduct the TDS and Professional Tax for contract employee? Thanks in advance.

  7. By SANGHAMITRA RATH

    Hi

    If you are remitting funds outside india for any consultancy fee to a person of UK do service tax / tds is applicable ?

    Consultant may travel to india in few instances only.

    Please advise.

    Thanks

  8. By Akash kumar

    Dear Mam
    I Made a bussiness of Rent Cab services.we attaches vehicle on mothly contract basis we have not made any bill or recpt of this amount .Is service tax Applicable in that Amount which are cllocted by us?

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