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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Section 194J mandates TDS on payments for professional or technical services, royalty, non-compete fees, and directors' fees to ensure advance tax collection.
Ensuring timely collection of taxes is crucial for a healthy economy. Section 194J of the Income
It serves as a pivotal mechanism for the deduction of tax at source (TDS) on a variety of payments. It helps collect taxes upfront, preventing delays and ensuring a steady flow of revenue for the government.
Section 194J of the Income Tax Act mandates Tax Deducted at Source (TDS) on payments made for professional or technical services, royalties, non-compete fees, and fees for services rendered by directors. This ensures taxes are collected in advance from payments made for such specified services.
Any person under Section 194J (excluding individuals and Hindu Undivided Families (HUFs) not subject to tax audit under Section 44AB) who makes payments for technical services, royalty, non-compete fees, and professional or directors’ fees is required to deduct TDS. This generally encompasses businesses, companies, and firms.
Section 194J covers the following services for TDS deduction:
Under Section 194J, four main types of payments are covered. These can also be called the services covered under Section 194J. Let us take a quick look:
Professional fees under Section 194J include payments made to professionals such as doctors, lawyers, engineers, accountants, architects, consultants, and interior decorators for their services.
Technical service fees refer to payments for managerial, technical, or consultancy services, including services related to software development, engineering, and technical support.
Royalty payments covered under Section 194J include payments for the transfer of rights or use of intellectual property such as patents, trademarks, copyrights, designs, and similar assets.
Payments made under non-compete clauses are covered, which involve compensation paid to individuals or entities to refrain from engaging in a similar business or profession for a specified period.
An individual must deduct TDS at the rate of 10% when the following payments to a resident exceed ₹30,000 in a fiscal year:
The consequences of non-deduction or late deduction of TDS under Section 194J can include the following:
Interest is charged at 1% per month or part thereof from the date on which TDS was supposed to be deducted until the date of actual deduction.
A penalty can be levied under Section 271C of the Income Tax Act, which is equal to the amount of TDS that was not deducted or deducted but not paid.
If TDS is not deducted or paid late, the expenditure on which TDS was required may be disallowed when computing the deductor’s income.
Non-compliance can lead to legal proceedings and other consequences as per the provisions of the Income Tax Act.
The time limit to deposit TDS under Section 194J of the Income Tax Act is as follows:
Payment Type |
Non-Government Deductors |
Government Deductors |
Payment made before 1st March |
Deposit by the 7th day from the end of the month |
Deposit by the 7th day from the end of the month |
Payment done in March |
Deposit by April 30th |
Tax payment is made on the date of professional or technical fees to the payee. However, the corresponding challan is deposited by the 7th day from the end of March. |
The time limit to file a TDS return under Section 194J of the Income Tax Act is as follows:
Type of Deductor |
Time Limit for Filing TDS Return |
Government Deductor |
Quarterly on or before the 15th day of the month following the quarter-end. |
Non-Government Deductor |
Quarterly on or before the 31st day of July for Q1, 31st day of October for Q2, 31st day of January for Q3, and 31st day of May for Q4. |
Government deductors must file their TDS returns quarterly by the 15th day of the month following the quarter-end. Non-government deductors are required to file quarterly TDS returns by specific due dates depending on the quarter.
A 10% TDS applies to payments made to residents for professional or technical services if the total payment in a financial year exceeds ₹30,000.
Here are some examples of professional fees attracting TDS (if exceeding ₹30,000):
Examples of technical services attracting TDS (if exceeding ₹30,000):
Tax Act plays a vital role in this process in India. This section mandates tax deduction at source (TDS) on payments made for various professional and technical services.
Understanding Section 194J is essential for businesses making payments and professionals receiving them. Both parties contribute to a robust tax system by adhering to the TDS guidelines. Following these regulations avoids penalties and legal consequences and fosters a transparent and accountable financial environment.
1
Section 194J of the Income Tax Act mandates the deduction of tax at source (TDS) on fees for professional or technical services, royalties, and non-compete fees.
2
The rate of TDS under Section 194J is generally 10%, but for payments to call centers, it is reduced to 2%.
3
Any person (other than individuals and HUFs not covered under tax audit) making payments for professional or technical services, royalties, or non-compete fees is liable to deduct TDS under Section 194J.
4
Yes, TDS under Section 194J is not required if the total amount paid or credited does not exceed ₹30,000 in a financial year.
5
Deductors must obtain a TAN, deduct TDS at the specified rates, deposit the deducted TDS with the government within the due dates, and file quarterly TDS returns.
6
More information can be found on the official Income Tax Department website or by consulting a tax professional or advisor.
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
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