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Section 194J under TDS of the Income Tax Act, 1961.

What is TDS?

TDS is a form of advance tax, TDS stands for tax deducted at source. According to the Income Tax Act, 1961, if the payment exceeds some Monterey threshold levels, every company or a person making a payment will deduct tax at source. The tax department must deduct TDS at the rates specified.

What is section 194J?

Section 194J is one of the most important sections under TDS(Tax Deducted at Source) of the Income Tax act, 1961 government of India. It enforces the company or a person to deduct the TDS(Tax Deducted at Source) while paying the payment or fees to a professional or technical service. The company or person making the payout after subtracting TDS is called a deductor and the company or person accepting the fee is called the deductee.”

On what kind of payments TDS is deducted?

TDS can be deducted on payments such as –

  • Payment of salary
  • Interest payments by banks
  • Commission payments
  • Rent payments
  • Consultation fees
  • Professional fees

Who is required to deduct the TDS?

Every company or a person, excluding an individual or a HUF(Hindu Undivided Family), making payment or fees to a resident for notified services fall under Section 194J of Income Tax Act. However, there is one exception. If the gross receipts, sales or the turnover of the individual or any HUF(Hindu Undivided Family) is over the threshold capital limit clearly featured under section 44AB. Then the individual or HUF will be covered under section 194J and they also required to deduct TDS.

Or it is easy to say that if the persons got required to do tax audit in the preceding year, He or She needs to deduct TDS as per the statement in Section 194J.

What is the minimum threshold to deduct TDS?

SectionNature of PaymentDeducterThreshold Limit
194JProfessional Fees
Company or a Person30,000 Rs.
194JTechnical Fees(Effected from 1 April 2020)Company or a Person30,000 Rs.
194JRemunerationDirectorNo Threshold Limit
194JIndividual or HUF if they are having a business.1 Crore Rs.
194JProfessional FeesIndividual or HUF if they are being paid for a profession or technical service.50 Lakh Rs.

The minimum threshold limit for deducting tax for a company or a person is 30,000 during a financial year. If the payment or the fees touches or crosses the amount mentioned above he is liable to deduct tax. But in case of a company director there no such limit and the tax will be deducted according to Section 194J Income Tax act, 1961 at any cost. Whereas Rule for deduction TDS for an individual and HUF are different.

The minimum threshold amount for an individual or HUF if they are having a business is 1 crore. And the TDS will be deducted if they cross the limit in the previous financial year.

Whereas the minimum threshold for an individual or HUF, if they are being paid for a profession or technical service, is Rs. 50 lakh and they are liable to deduct TDS if their turnover exceeds the threshold amount during the previous financial year.

What are the services for which TDS is deductible?

Every individual making payment to the following services are required to deduct TDS under Section 194J of the Income Tax Act, 1961 Government of India.

  • Fees for professional services
  • Fees for technical services
  • Royalty
  • Remuneration/fees/commission paid to director of the company
  • Fees paid for not moving out any activity in relationship with any business or profession
  • Fees paid for not sharing any technical know-how, copyright, trade mark, patent, or any other business or commercial rights of the same nature.

It does not give a good idea, now let’s understand some key terms mentioned above in a bit more detail.

What is a professional service?

A professional service under Section 194J includes

  • Medical service
  • Legal service
  • Engineering service
  • Architectural profession service
  • Accountancy service
  • Technical consultancy service or
  • Interior decoration service

Except for these Professional services mentioned in section 44AA includes

  • The profession of film artist
  • The profession of the authorized representative
  • Or the profession of Company Secretary

And the professional services related to sports activities engraved by CBDT(The Central Board of Direct Taxes) for Section 194J Under TDS

  • Anchors
  • Commentators
  • Event Managers
  • Physiotherapists
  • Referees and Umpires
  • Sports Persons
  • Sports Columnists or
  • Trainers and Coaches

What is the technical service?

Explanation to technical service in Section 194J includes

  • Technical services
  • Managerial services
  • Consultancy Services
  • And Prerequisite of services of technical or other personnel

What is royalty?

According to the Indian Income Tax act, 1961 Royalty is defined under Section 9 of the Act it includes

  • Transfer of all or any rights(patent, invention, model, design, secret formula or process or trade mark or similar property)
  • Imparting of any information (that concerning the working of or the use of, a patent, invention, model, design, secret
    the formula, technical, process, trade mark, technical, economic or scientific knowledge, industrial, profession or skill, and similar properties)
  • Control or freedom to use( industrial, commercial and scientific equipment)
  • Rendering of any services

After this all stuff let’s have a look at the Rate of Deduction of TDS

What are the rates of deduction of TDS?

Payment or FeesRate of TDS till 31st March 2020Rate of TDS from 1st April 2020 onwards
Fee for Professional services10 Percent10 Percent
Fee for Technical services10 Percent2 Percent
Royalty of sale, distribution or exhibition of cinematographic feature films10 Percent2 Percent
Other Royalties10 Percent10 Percent
TDS rate if PAN not available20 Percent20 Percent

As per the guidelines provided under Section 194J of the Income-tax Act, 1961 TDS rate for Expert or Professional services, technical services, Royalties was 10% till 31st March 2020.

But according to the new guidelines from 1st April 2020 onwards provided under Section 194J of the Income-tax Act, 1961 the rate for Professional services and other royalties is 10%.

Whereas in case of fees for technical service the TDS rate is 2 %. And the TDS is 2 % for Royalty related to sale, distribution, or exhibition of cinematographic films.

But apart from all this in case if the payee does not have a valid PAN(Permanent account number) are the TDS rate Doubles and becomes 20% for any professional service.

How can I claim TDS under section 194J?

If the TDS is deducted for any professional or technical service under section 194J Income-tax Act, 1961, and the total net income if below taxable income annually then the payee has an option to claim TDS as a refund. For this, He/She needs to File ITR(Income Tax Return) form.

What kind of ITR should I fill to claim TDS?

While thinking to claim TDS one may confuse WHat ITR should I fill?
Well, it depends on the nature of your income. But there is one thing to consider here, that if the TDS is deducted under Section 194J the source of
income must be from consultancy, professional work, or business.

Therefore you have three options ITR1, ITR3 and ITR4.

ITR1 – If the income is coming from professional service income(One time) Then you may represent it as income from other sources and filling ITR1 would be good for you.

ITR3 – If the income is from business or professional service. Then you will need to do some extra work and you are required to provide details in the Profit & Loss balance sheet or simply manage books of accounts.

ITR4 – If the income is from a profession notified under section 44AA, then you can fill this form.

This was all for today, If have any question any query please consider mentioning in comment section i will be happy to help you.