Section 194J – TDS on Professional or Technical Fees

Section 194J TDS on Professional or Technical Fees

TDS (Tax Deducted at Source) is a type of indirect tax levied on an individual’s earnings. In basic terms, when any individual or corporation makes payments such as professional fees, salary, technical or commission, interest, rent, and so on, they must deduct a predetermined percentage as a tax, and remit it to the government. Deductor is the individual who is required to deduct tax at source. Deductee is the individual who is entitled to payment after deduction.

Transactions Covered by Section 194J

According to Section 194J of the Income Tax Act of 1961, the following payments are subject to TDS deduction:

  • Fees for professional services rendered by a person in the fields of medicine, architecture, law, or engineering. This also includes the occupations stated in Section 44AA, as well as the services provided by athletes, performers, physical trainers, and event organizers.   
  • Charges for technical services are carried out by consultants, managers, or technicians. 
  • Remuneration paid to a company’s director, such as seat fees and fees for attending board meetings (but not salary).
  • Royalty payments are provided in consideration of literature or scientific work, patent or copyright, design and invention, and so on.
  • Non-competing fees are paid under a contract for sharing business operations and technological know-how, such as a trademark, licence, franchise name, or any similar privilege.

Types of Payments Covered

This section includes the payments paid to citizens in the following categories:

  • Payment for professional services provided.
  • Fees for technical services rendered.
  • Payments paid to directors other than their usual remuneration. This includes, for example, attendance fees at board meetings.
  • Payment of royalties.
  • Non-compete fees are payments made to refrain from engaging in any business or profession for a certain length of time and within specific geographical restrictions, or payments made to withhold any technical expertise or know-how.
Section 194J – TDS on Professional or Technical Fees

Who is required to deduct TDS under Section 194J?

Any person, excluding individuals and HUFs (individuals and HUFs are only liable if they are subject to audit under Section 44AB), who pays a resident for professional or technical services must deduct TDS.

Persons Required to Deduct TDS Under Section 194J

  • If an individual/HUF runs a firm with a turnover/gross sales/total receipts of more than 1 crore in the previous fiscal year.   
  • If an individual or HUF is engaged in a profession and his turnover/gross sales/total receipts surpass 50 lakhs in the previous fiscal year.

Section 194J Deduction Exemption Limit

  • Companies and individuals, including call centre operators who provide technical/professional services, must deduct tax only if the payment amount exceeds 30,000 in any given year.
  • Tax must be deducted from payments given to the company’s director, regardless of the threshold limit.

Conclusion

The deduction of tax at source (TDS) on professional or technical fees is addressed under Section 194J of the Income Tax Act. In conclusion, under this section, if a person pays a resident for professional or technical services in excess of Rs. 30,000 in a fiscal year, they must deduct TDS at the rate of 10%. The appropriate TDS rate is often greater if the payment is made to a non-resident. This law ensures that tax on such payments is paid in advance, assisting the government in preventing tax avoidance. Individuals and organisations must comply with Section 194J in order to complete their TDS requirements.