Section 194J Income Tax TDS on Fees for professional or technical services

By | March 4, 2023
(Last Updated On: March 4, 2023)

Section 194J Income Tax TDS on Fees for professional or technical services

Section 194J Income Tax Act of India  specifies the rules related to Tax Deducted at Source (TDS) on payments made towards fees for various professional and technical services.

Summary of Section 194J Income Tax TDS on Fees for professional or technical services

  • Section 194J of Income Tax is  Inserted by the Finance Act, 1995, w.e.f. 1-7-1995.
  • What are Rate of TDS under Section 194J ? : According to Section 194J, TDS will be deducted at a rate of 2% in case of fees for technical services (not being professional services) and up to 10% of such sum in any other case. However, if the payee does not provide their PAN (Permanent Account Number), then TDS will be deducted at a rate of 20%.
  • Who are liable to deduct TDS under Section 194J ?According to Section 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 are a few exceptions when tds will not be deducted u/s 194J by  :
    •  An Individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him does not exceed Rs 1 Crore in case of business or Rs 50 Lakh in case of profession] 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, shall not be liable to deduct income-tax under this section
    • A person who makes payment for personal purposes and not for business or profession.
    • A person who makes payment to a bank listed in the Second Schedule of the RBI Act, 1934.
  • What is the meaning of professional services?  Professional services means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
  • What is the meaning of “fees for technical services” ? Technical services shall have the same meaning as in Explanation 2 to Section 9(1) (vii) which read as follows
    • For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consi-deration) for the rendering of any managerial, technical or consul-tancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”;
  • For Section 194J Income Tax you needs to refer relevant Income Tax  Rules 28, 28AA, 28AB, 30, 31, 31A and 37BA and Income tax Form Nos. 13, 16A, 24G, 26B, 26Q and 27A.
  • For Section 194J Income Tax you needs to refer Relevant
    • Circular No. 714, dated 3-8-1995/Circular No. 715, dated 8-8-1995 (Payments by advertising agency to artists and clarifications on payments to certain agencies),
    • Circular No. 720, dated 30-8-1995 (Deduction to be made under one section only),
    • Circular No. 726, dated 18-10-1995 (Fees received from abroad),
    • Circular No. 766, dated 24-4-1998,
    • Circular No. 8/2009, dated 24-11-2009 (Applicability of provisions u/s 194J, in the case of transactions by the Third Party Administrators (TPAs) with hospitals etc.),
    • Circular No. 1/2014, dated 13-1-2014 and Circular No. 23/2017, dated 19-7-2017 (Service tax/GST component comprised in payments).

Section 194J Income Tax

[Fees for professional or technical services.
194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—
(a)fees for professional services, or
(b)fees for technical services,1[or]
2[(ba)any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or]
3[(c)royalty, or
(d)any sum referred to in clause (va) of section 28,]
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 4[two per cent of such sum in case of fees for technical services (not being a professional services), or royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films and ten per cent of such sum in other cases,] as income-tax on income comprised therein :
Provided that no deduction shall be made under this section—
(A)from any sums as aforesaid credited or paid  before the 1st day of July, 1995; or
(B)where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed—
(i)5[thirty thousand rupees], in the case of fees for professional services referred to in clause (a), or
(ii)5[thirty thousand rupees], in the case of fees for technical services referred to in 6[clause (b), or]
7[(iii)5[thirty thousand rupees], in the case of royalty referred to in clause (c), or
(iv)5[thirty thousand rupees], in the case of sum referred to in clause (d) :]
8[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed 9[one crore rupees in case of business or fifty lakh rupees in case of profession] 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, shall be liable to deduct income-tax under this section :]
10[Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family:]
11[Provided also that the provisions of this section shall have effect, as if for the words “ten per cent”, the words “two per cent” had been substituted in the case of a payee, engaged only in the business of operation of call centre.]
(2) 12[***]
(3) 12[***]
Explanation.—For the purposes of this section,—
(a)“professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
(b)“fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
13[(ba)“royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;]
(c)where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.]

Notes on Amendments in Section 194J Income tax

Refer the Notes number in above section 194J income Tax which are inserted /amended as follow :-

  1. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.
  2. Inserted by the Finance Act, 2012, w.e.f. 1-7-2012.
  3. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.
  4. Substituted for “ten per cent of such sum” by the Finance Act, 2020, w.e.f. 1-4-2020. Earlier, the italicised word was substituted for “five” by the Finance Act, 2007, w.e.f. 1-6-2007.
  5. Substituted for “twenty thousand rupees” by the Finance Act, 2010, w.e.f. 1-7-2010.
  6. Substituted for “clause (b):” by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.
  7. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.
  8. Inserted by the Finance Act, 2002, w.e.f. 1-6-2002.
  9. Substituted for “the monetary limits specified under clause (a) or clause (b) of section 44AB” by the Finance Act, 2020, w.e.f. 1-4-2020.
  10.  Inserted by the Finance Act, 2003, w.e.f. 1-6-2003.
  11.  Inserted by the Finance Act, 2017, w.e.f. 1-6-2017.
  12. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006.

Judgments on Section 194J Income Tax

Where assessee, a Third Party Administrator (TPA), for medical insurance policies issued by Insurance companies, made payment to a hospital on behalf of insurance company for several services rendered by hospital such as bed charges, medicines, follow up services, etc., along with medical professional services, assessee was liable to deduct tax at source under section 194J in respect of entire payment – CIT v. TTK Healthcare TPA (P.) Ltd. [2020]

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Section 194J Income Tax TDS on Fees for professional or technical services

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