Section 194J (Fee for Professionals & Technical Experts/Consultants)

As per Union Budget 2020, the TDS rate for the payment of fees for technical services under Section 194J of Income Tax Act has been reduced to 2% from 10%. The TDS rate for the payment other professional services except that for technical services remains same at 10%. This change in TDS rate will come in effect from 1st April, 2020.

Section 194J of the Income Tax Act, 1961 specifies the rules related to Tax Deducted at Source (TDS) on payments made towards fees for various professional and technical services. TDS mechanism forms a part of advance tax deduction, and thus tax u/s 194J is deducted at the applicable rate prior to completion of payment for any professional or technical service. The following are some additional details about Section 194J of the IT Act, 1961.

Which Payments are subject to TDS under Section 194J?

Section 194J deals with TDS deduction on payments made for availing professional and technical services. The payments considered under this section are:

• Fees for professional services in the fields of medicine, architecture, law or engineering.
• Fees for technical services provided by consultants, technical consultants, managers, etc.
• Royalty payments in lieu of literary works, scientific findings, inventions, patents, etc.
• Remunerations made to a company director (excluding salary)
• Payments made in the nature of non-compete fees i.e. fees paid for purposes other than hiring for a project or consultation such as for sharing patents, license, franchise, trademark, etc.

In all the above cases, TDS u/s 194J for professional/technical services should be deducted at the applicable rate before completion of the payment (subject to TDS exemption limit).

What is Rate of TDS as per Section 194J?

All payments defined as transactions under Section 194J are taxed as follows:

• Flat rate of 10% on the transaction amount if PAN (Permanent Account Number) is provided by the professional/technical services provider (payee).
• Flat rate of 20% on the transaction amount if PAN (Permanent Account Number) is not provided by the payee
• For operators of call centres, the TDS rate is lower and equal to 2% of the transaction value.

All the above rates are subject to the minimum TDS exemption specified u/s 194J.  

What is the Threshold Limit for Section 194J Deduction?

The minimum TDS exemption limit specified under Section 194J as of AY 2019-20 is Rs. 30,000 per annum for all individuals and entities including call centres designated to be providers of professional/technical services. The only exception in this regard is with respect to payments made to a company director since all such payments are subject to TDS irrespective of the transaction value/exemption limit.

Who is liable to deduct TDS u/s 194J?

Any person who is liable to make payment for availing professional or technical services shall deduct TDS u/s 194J, provided the threshold limit of Rs. 30,000 per annum is met.

However, there a few exceptions:

• Individuals and HUFs shall not deduct TDS when such services are availed solely for personal purposes.
• Individuals and HUFs carrying on business, where the turnover or gross receipt does not exceed Rs. 1 crore in the previous year shall not deduct TDS u/s 194J.
• Individuals and HUFs carrying on profession, where the gross receipts do not exceed Rs. 50 lakh in the previous year shall not deduct TDS u/s 194J. 

Time Limits for Tax Payment under Section 194J

After deduction of TDS u/s 194J, the deductor is required to deposit the amount deducted with the government. The following are details of the TDS payment time limits as described by Section 194J:

• If the payment after TDS is made before 1st March of the applicable financial year then TDS must be deposited with the government by the 7th day of the subsequent month. For example if TDS is deducted on 1st December 2018, the TDS amount needs to be deposited with the government on or before the 7th of January 2019.  
• If the payment after TDS deduction has been made in March of a financial year, then the tax payment under Section 194J must be made by 30th April of the same calendar year.

Consequences of Delayed or Missed TDS Deposit under Section 194J

Section 194J of the Income Tax Act, 1961 mentions various penalties in case an individual or entity availing services forgets to deduct TDS while making the payment or delays the TDS payments to the government. The following are some of the penalties that may be applicable:

• Decrease in Tax Benefit in lieu of Expenditure: If an individual or entity fails to deduct TDS, then 30% of their expenditure for the services received will be disallowed for the applicable financial year in which the transaction was carried out. In effect, the full tax benefits of expenses made by a tax assessee are thus allowed only after the deduction and timely payment of TDS to the government.
• Levy of Interest Until the Date of Payment: In the case of delay, the entity or individual has to pay penal interest on the due TDS amount as follows:

• • If TDS Not Deducted – Interest is payable at 1% per month or part of the month from the date on which TDS was to be deducted up to the date of actual deduction.

• • TDS Deducted but Not Deposited to the Government: Interest is payable at 1.5% per month or part of the month from the date on which TDS was deducted up to the date of payment to the government.

Frequently Asked Questions (FAQs)

1. Who will deduct TDS for services listed under Section 194J?
Answer: TDS or Tax Deducted at Source for services availed from professionals and technical experts/consultants is deducted by the payer at the time of payment for services availed. For instance, if an individual is availing professional services of an architect, then the individual will have to deduct TDS before paying the applicable fees to the professional.

2. I availed consultancy services of an architect for my home. Should I deduct TDS before paying his fees?
Answer: No, you should not deduct TDS if you availed the service for home renovation. As per Section 194J, an individual is not liable to deduct TDS when the service is availed to meet personal needs. 

3. Are there any tax exemptions for TDS under Section 194J?
Answer:Yes. The exemption for TDS under Section 194J is Rs. 30,000 per annum. However, the payment made to the director must be taxed as per the prevailing TDS rate irrespective of the amount payable.

4. I do not have the PAN details of the payee. Should I still deduct TDS u/s 194J?
Answer:Definitely. In fact, the taxation rate for payees who do not furnish PAN is 20% as compared to normal rate of 10% applicable to professional/technical services providers who disclose PAN. Therefore, request the payee to provide his/her Permanent Account Number, if the request is refused, then you can deduct TDS at the rate of 20% before making the payment. Don’t forget to subsequently deposit the TDS with the government using the applicable challan.

5. Will I be penalised for not paying TDS to the government?
Answer:Yes. When you collect TDS, you have a specified amount of time to remit the tax to the government. Failure to do so attracts a penal interest at the rate of 1.5% per month (or part of the month) from the date TDS was collected up to the date of actual (delayed) payment. It is recommended that you pay the collected TDS on time to avoid the possible penalties.