What is Section 194J of the Income Tax Act?

Section 194J: TDS on Fees for Professional and Technical Services

Tax Deducted at Source (TDS) on professional fees is governed under Section 194J of the Income Tax Act, 1961. This section applies to businesses and entities making payments to resident professionals and technical service providers. Understanding the provisions of TDS on professional fees is essential for ensuring compliance and avoiding penalties.

Who Needs to Deduct TDS Under Section 194J?

TDS under Section 194J is applicable to any person other than an individual or HUF who makes payments exceeding ₹30,000 in a financial year for professional or technical services. However, HUFs and individuals are also required to deduct TDS if they are liable for audit under Section 44AB.

Entities covered under Section 194J include:

• Companies, LLPs, Trusts, AOPs, BOIs
• Cooperative societies, Corporations, Local authorities
• Central and State governments

Payments Covered Under Section 194J

TDS is applicable to the following types of payments:

1. Professional Services: Includes services provided by doctors, lawyers, engineers, accountants, interior designers, consultants, and other professions listed under Section 44AA.
2. Technical Services: Covers managerial, technical, or consultancy services (excluding mining, construction, and manufacturing activities).
3. Non-Compete Fees: Payments made to individuals/entities for not sharing intellectual property, business secrets, or technical know-how.
4. Royalty Payments: Includes payments for intellectual property, patents, copyrights, trademarks, artistic works, scientific discoveries, and broadcasting rights.

TDS Rates Under Section 194J

The applicable TDS rates for different categories are:

Threshold Limit for TDS Deduction

TDS under Section 194J is only applicable if the total payment to a single professional or technical service provider exceeds ₹30,000 in a financial year.

Non-Applicability of TDS Under Section 194J

TDS on professional fees is not applicable in the following cases:

• Payments made by individuals and HUFs not covered under audit requirements of Section 44AB.
• Payments made to non-residents, as these are covered under Section 195.
• If the total payment in a financial year is less than ₹30,000.

Consequences of Late or Non-Deduction of TDS

Failure to deduct or deposit TDS under Section 194J results in the following penalties:

1. Interest on Late Deduction/Deposit:
   • 1% per month from the due date of deduction until the actual deduction.
   • 1.5% per month from the date of deduction until the deposit of TDS.
2. Disallowance of Expenses:
   • 30% of the professional fee paid will not be allowed as a deduction while calculating taxable income.
3. Penalty Under Section 271C:
   • A penalty equal to the TDS amount can be levied for failure to deduct tax.

TDS Return Filing for Professional Fees

TDS deducted under Section 194J must be reported in Form 26Q and filed quarterly within the due dates:

Conclusion

TDS on professional fees ensures tax compliance and prevents tax evasion. Businesses and individuals liable under Section 194J must deduct and deposit TDS on time to avoid penalties. If you need assistance with TDS return filing or compliance, consult Saptax Hub LLP – The Best CA Firm in Delhi for expert guidance!