7 Mins

Applicability of Section 194J of Income Tax Act, 1961

Section 194J of the income tax act is applicable to every person, not being an individual or a HUF,  who makes a payment in respect of the services notified is under section 194J.  

However, an individual or a HUF will fall under the purview of section 194J in the following cases:

  1. An individual or HUF is carrying on a business. The total sales, gross receipts, or turnover from the business exceed Rs 1 crore. And the limit exceeds during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid.
  2. An individual or HUF is carrying on a profession. The total sales, gross receipts, or turnover from the business exceed Rs 50 lakh. And the limit exceeds during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid.

Basically, if an individual or a HUF is liable to get its books of accounts audited u/s 44AB then he/ she must deduct TDS as per section 194J.

Services Listed Under Section 194J of Income Tax Act, 1961

Any person must deduct TDS while making payment for any of the following services must deduct TDS:

  1. fees for professional or technical services, or
  2. any remuneration or fees or commission by whatever name called paid to a director of a company. Here the remuneration or fees or commission is not a part of the salary.
  3. royalty, or
  4. Fees for not carrying out any activity in relation to any business or profession, or
  5. Fees for not sharing any technical know-how, copyright, trademark, patent, or any other business or commercial rights of the same nature.

Limit for TDS Deduction Under Section 194J of The Income Tax Act

A person liable to deduct TDS must deduct TDS only if the amount of payment for the professional or technical services exceeds the limit. If the aggregate amount credited/paid during the financial year does not exceed the prescribed limit then TDS must not be deducted

The following is the list of services along with the limit:

ServicesAmount (Rs)
Fees for professional services30,000
Fees for technical services30,000
Royalty30,000
Any remuneration or fees or commission by whatever name called paid to a director of a company30,000
Fees for not carrying out any activity in relation to any business or profession30,000
Fees for not sharing any technical know-how, copyright, trademark, patent, or any other business or commercial rights of the same nature.30,000

TDS Rate Under Section 194J of Income Tax Act

The following rate applies to the services listed under section 194J of the Income Tax Act:

ParticularsRate of Tax Deducted At Source
The payee is engaged in the business of the operation of the Call Centre only (effective from 1st June 2017)2%
Fees for technical services. (the technical fees is not a professional royalty where such royalty is in the nature of consideration for sale, distribution, or exhibition of the cinematographic film) (effective from 1st April 2020)2%
Professional royalty. Royalty is in the nature of consideration for sale, distribution, or exhibition of cinematographic film10%
Fees paid for any other professional services10%
The payee fails to furnish PAN20%

Time To Deduct TDS Under Section 194J of The Income Tax Act

The person liable to deduct TDS under section 194J must deduct TDS:

  1. at the time of credit of such sum to the account of the payee, or
  2. at the time of payment thereof in cash or draft or by any other mode

Whichever is earlier

Consequences of non-deduction or late deduction

The following are the consequences of not deducting the TDS or after deduction of TDS not paying to the income tax department:

Disallowance of the expenditure

  1. 30% of the expenditure will be disallowed while calculating the profit or loss in the year in which the expenditure is claimed
  2. The disallowed expenditure can be reclaimed in the year in which TDS is deducted and paid to the income tax department

Interest on failure to deduct or pay TDS

  1. Failure to deduct TDS- 1% per month/part of month from the date on which such tax was required to be deducted up to the date of actual deduction.
  2. Failure to pay/ deposit TDS- After deduction of TDS the taxpayer failed to pay or deposit the deducted TDS to the income tax department. The interest will be 1.5% per month/part of month from the date on which such tax was deducted up to the date of payment to the government

Due Date For Payment of Tax Deducted At Source

The following is the due date for payment of TDS

The deductor is a Non – Government taxpayerFees paid by the government or on behalf of the government
Payment made before 1st March7th day from the end of the month7th day from the end of the month
Payment made in the month of MarchApril 30thTDS payment is made on the date of payment to the payee. 
However, the challan is deposited by the 7th day from the end of the month

How to claim TDS u/s 194J in Income Tax Return?

While filing the income tax return, the taxpayer must mention the details of the TDS amount and fee amount. The details of TDS, TAN of the deductor, etc can also be viewed in the Form 26AS of the relevant assessment year. 

The TDS deducted by a deductor is equivalent to the tax paid for the relevant assessment year. While calculating the net tax payable, TDS along with the advance tax and self-assessment tax will be deducted. The net amount is the final liability of the taxpayer.

Meaning of Important Terms For the Purpose of Section 194J

Professional Services

Professional services means services rendered by a person in the course of carrying on:

  1. legal, medical, engineering or 
  2. architectural profession or 
  3. the profession of accountancy or 
  4. technical consultancy or interior decoration or 
  5. advertising or 
  6. such other profession as is notified by the Board 

Fees for technical services

Any consideration for the rendering of any of the following:

  1. Managerial services
  2. Technical or consultancy services

However, the following services do not form part of fees for technical services

  1. consideration for any construction, assembly, mining or like project undertaken by the recipient
  2. consideration which is chargeable under the head “Salaries in the hands of the receipient

The consideration for technical service could be a lumpsum payment or in installments. The frequency of payment does not affect the applicability of section 194J

Royalty

Royalty includes the following:

  1. Transfer of all or any rights or granting of a licence. This could be for a patent, invention, model, design, secret formula or process or trade mark or similar property.
  2. 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 ;
  3. Use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
  4. Imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
  5. use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB
  6. Transfer of all or any rights (including the granting of a licence) 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
  7. Rendering of any services in connection with the activities referred to in section 9 sub-clauses (i) to (iv), (iva) and (v).