Section 194J of the Income Tax Act, 1961, deals with the TDS (Tax Deducted at Source) on payments made to professionals and technical service providers. This section is essential for businesses and individuals who make payments to professionals, as it outlines the tax deduction requirements to ensure compliance with Indian tax laws.
What is Section 194J?
Section 194J of the Income Tax Act, 1961, is an important provision related to the taxation of payments for professional services in India. This Section requires that any person or entity making payments to another person for professional or technical services must deduct tax at source. This includes payments for services such as consultancy, legal advice, accounting, engineering, technical services, and royalty payments.
Who is Affected?
Section 194J applies to any person who makes payments for:
- Professional services
- Technical services
- Royalty
- Non-compete fees
These payments could be to individuals, firms, or companies providing such services.
TDS Rate and Threshold:
The standard TDS rate under Section 194J is 10%. However, for payments related to royalty or technical services, it is 10% (or as specified in the relevant provisions). If the payment is for professional services, the rate is also 10%.
There’s a threshold limit of ₹30,000 per annum. This means TDS is only required if the total payment to a professional or service provider exceeds ₹30,000 in a financial year. If the payment is less than this threshold, no TDS is required.
Example:
Let’s consider a company, XYZ Ltd., which hires a consultant for IT services. The consultant charges ₹50,000 for their services in a financial year.
Here’s how the company should handle TDS under Section 194J:
- Total Payment: ₹50,000
- TDS Rate: 10%
- TDS Amount: ₹50,000 x 10% = ₹5,000
XYZ Ltd. must deduct ₹5,000 as TDS from the payment of ₹50,000. Therefore, the amount payable to the consultant after TDS is ₹45,000 (₹50,000 – ₹5,000). The company then deposits the TDS amount of ₹5,000 to the government and provides a TDS certificate to the consultant.
Conclusion:
Section 194J is a key provision for ensuring that income from professional and technical services is properly taxed. By understanding and applying this section correctly, both the payer and the recipient can ensure compliance with tax laws, avoiding any legal hassles and promoting transparent financial transactions.
– Ketaki Dandekar (Team Arthology)
Read more about Section 194J here – https://cleartax.in/s/194j