1. What is section 194J?
Section 194J of the Income Tax Act focuses on provisions regarding TDS deduction by a payer while making payments to a resident individual for providing specified technical and professional services. This article contains essential information regarding this Section. Hence, individuals curious to know about it must keep reading!
2. Types of Payments
Following are the types of payments which are covered under section 197J- Fees for professional services Fees for technical services Remuneration paid to directors of the company (with the exception of salary) Royalty Any sum expresses in clause (VA) of section 28.
3. What are the threshold limits for deducting Tax?
If the payment for the professional or technical services exceeds the limit of Rs. 30,000 then the tax must be deducted during the year. It is worth noting that the Rs. 30,000 limit is pertinent to each item. The tax will have to be deducted no matter how small the amount is. However, there is no prescribed limit for the payments of commission, fees, or remuneration made to a director.
4. Amendments In Section 194J
As per section 194J - TDS (Tax deducted at the source) will be drawn at a rate of 2% for the specialized services payments (Not being skilled services) and up to 10% in all other matters under Section 194J. Individuals or HUFs (Hindu Undivided Family) having total revenue, gross earnings, or turnover surpassing Rs. 1 crore specialized services in the case of a business and Rs. 50 lacs for a profession during the Financial year preceding the FY in which such interest is charged to deduct TDS. Income Tax TDS Rates - Section 194J Tax Rates Factors 2% Fees for technical services. (the technical fees are not a professional royalty where royalty is in nature consideration for sales, distributions, or exhibitions of the cinematographic films) (which is effective from 1st April 2020) 2% The payee is engaged in the business of operation of the Call Centres (effective from 1st June 2017) 10% Royalty is in the nature of consideration for sales, or exhibitions of cinematographic films and distractions 10% Fees paid for professional services 20% The payee fails furnish of PAN
5. Protected Payments under section 194J
Any individual can deduct TDS at a rate of 10% while making the following cases of payments to a citizen in a financial year (if the amount is above Rs.30,000)- When the payment is done as a premium for professional services. When an amount is paid as a business fee for technical services. Non-compete charge under Section 28(VA) of the IT Act Royalty. Professional services- Professional services are referred to as the services furnished by an individual in the field of medical, architecture, civil, medical, or engineering. Accountancy, advertisement, interior design, professional consulting, and other occupations identified by the Board under Section 44AA are instances of other facilities. Film writers & producers, company clerks, and authorized ambassadors are believed in the other resources permitted under Section 44AA. Moreover, it also contains program organizers, anchors, umpires and judges, reporters, coaches and assistants, physiotherapists, and staff doctors. Technical Services- Technical services stand for consultation of technological, or managerial services furnished by an employee. However, Assemblies, mining, and manufacturing are not counted as professional facilities since these professions earn money for people who fall under the recipient’s major wage. Royalty- Royalty stands for the payments made towards- Transfering the rights/usage of a technique, method, invention, design, prototype, trademark, patent, etc. Making use of patents, inventions, designs, methods, techniques, etc. Furnishing any details pertinent to using a formula, invention, patent, etc. Transfering the rights pertinent to scientific research, films, or videos for radio broadcasting but does not contain the consideration for the sale, or distribution of cinematographic films or exhibition. Furnishing details pertinent to technical, commercial, industrial, or scientific gains, skills, or experiences. Non-Compete Services- A non-compete fee is a type of fee that is paid in cash or for the exchange of management that stops exchanging of any patent, license, contract, technique, trademark, commercial or business rights, or any details whose chances are maximum to be utilized anywhere for creation, manufacturing, production, or any other operation.
6. Who Can Deduct TDS under Section 194J?
The people who pay a charge for professional or technical services are required to deduct TDS. However, there are also some individuals who are not required to deduct TDS on such payments: Individuals or HUFs involved in the business: If the turnover of the former financial year did not exceed Rs.1 crore. Individuals or HUFs involved in the profession: If the turnover of the former financial year did not exceed Rs.50 lakh. All business corporations who do not need to conduct a tax audit must deduct TDS when they make fee payments for technical or professional services (except HUF/individuals).
7. Consequences for late TDS deductions/Non-deduction
Late deduction of the tax or non-deduction of the tax has two sides consequences which are as follows- Interest will be Applied: If there is any delay made for payment of tax, then the individual has to pay interest with the TDS to the Government. The rate of interest is defined in the following ways- (In case no tax deduction has been made) - Interest shall be payable at 1% per month from the date on which the tax was directed to be deducted up to the date of substantial deduction. (If tax has been deducted but not paid to the government) - Interest would payable at 1.5%/month from the date on which the tax was deducted up to the date of payment to the government. Expenses will be Prohobitied: If a timely deduction of TDS is not done, the individual is not allowed to claim the deduction of these expenses from PGBP income. 30% of the payment is the amount of disallowed expenditure.
Frequently Asked Questions
Is the salary (Received by faculty) evaluated under section 194J?
Evaluating salary received by faculty would be considered under 194J based on the fact that the employer-employee relationship exists or not.
Which ITR form should I file when a TDS was made under Section 194J rather than 192?
In this case, you should consider ITR 3 or 4 to be utilized as 194J pertinent to technical & professional.
What services fall under Section 194J?
Following are the services that fall under section 194J - technical services, professional services, royalty, non-compete fee, and compensation provided to company directors (Except salary).
What is the limit of TDS deduction under Section 194J?
Section 194J mandates the tax at the source to be deducted in case the payment for professional/technical services covered by this section exceeds Rs.30,000 per year.
Would the stipend which I got, fall under Professional Tax 194J?
No. The stipend does not come under the professional tax. It may come under 192 when meeting a few conditions.
Which ITR should I file as a salaried employee under 194J?
ITR-1 is to be filed for professional services rendered casually.