FAQ’s on TDS Under Section 194J

By / / Income Tax

1. Section 194J of the Income Tax Act, 1961

Section 194J of the Income Tax Act, 1961 states the provisions for deducting tax at source during payment of fees for professional services or technical services or royalty.

2. What are all the payments covered under this section?

  • Fees for professional services
  • Fees for technical services
  • Director remuneration
  • Royalty
  • Non-compete fees

3. Instance where director remuneration is not taxable under section 194J

If the director is a part of the payroll of the company, i.e. he is considered as an employee, tax will be deductible under section 192 of the Income Tax Act instead of section 194J.

4. What do you mean by non-compete fees for the purpose of deducting tax under section 194J?

  • Non-compete fees can be defined as any sum received, in cash or kind, under an agreement for
    1. Not carrying out any business or profession
    2. Not sharing any intellectual property rights (trademark, patent etc) which are likely to assist in the manufacture or processing of goods or provision of services.

5. Who should deduct tax under section 194J?

  • Any person who is responsible for paying the following amounts to a resident is liable to deduct tax under this section
    1. Fees for professional services
    2. Fees for technical services
    3. Director remuneration
    4. Royalty
    5. Non-compete fees

6. Is section 194J applicable to a non-resident?

  • No, TDS under section 194J is not applicable to a non-resident.
  • However, when the above mentioned sums are paid to a non-resident, Tax should be deducted under section 195 read with section 115A of the Income Tax Act, 1961

7. Is an individual or HUF liable to deduct tax under this section?

An individual or HUF, whose turnover/gross receipts exceed Rs. 1 Crore or Rs. 50 lakhs respectively during the financial year immediately preceding the financial year in which such sum is paid or payable is liable to deduct tax under this section.

8. When should the tax be deducted under this section?

At the time of payment or credit, whichever is earlier.

9. What is the rate at which tax should be deducted under this section?

  • In case of
    1. Fees for technical service – 2%
    2. Royalty which is in the nature of consideration for sale/distribution/exhibition of cinematographic films – 2%
    3. Payment to call center – 2%
    4. All other cases – 10%

10. What is the maximum amount up to which tax need not be deducted under this section?

  • The maximum amount not chargeable to tax is Rs. 30,000
  • I.e., no tax needs to be deducted if the aggregate amount paid or credited during the financial year by the aforesaid person to the payee does not exceed Rs. 30,000.

11. Mr. X paid Rs 20000 as fees for professional services to Mr. Y on July 2020 for which he did not deduct any TDS since the payment is below Rs. 30,000. However, Mr. X made another payment to Mr. Y for Rs. 30000 on December 2020. Should Mr. X deduct TDS on the payment? If yes, how much tax should be deducted?

  • Mr. X needs to deduct tax under section 194J since the aggregate amount of payment made during the FY 20-21 exceeds Rs. 30,000.
  • In the given case, Mr. X needs to deduct tax at the rate of 10% on Rs. 50,000

12. Mr. X avails both advertisement and professional services from Mr. Z. Mr. X makes a payment of Rs. 90,000 for advertisement which falls within the scope of section 194C and Rs. 20,000 for professional services which falls within the scope of section 194J. Is Mr. X required to deduct TDS in this case?

  • Even though the aggregate payments made to Mr. Z exceed Rs. 1,00,000, the individual threshold given under section 194J (Rs. 30,000) has not been breached.
  • Assuming Mr. X has paid Rs. 90,000 against a single invoice in respect of advertisement expenses and the threshold limit for single payments under section 194C is Rs. 30,000. Mr. X is required to deduct TDS at the rate of 1% on Rs. 90,000 as per section 194C of the Income Tax Act, 1961.
  • However, payment in respect of professional fees does not exceed Rs. 30,000 and hence no tax needs to be deducted under section 194J of the Act even though the aggregate payments made (inclusive of advertisement expenses) exceeds Rs. 30,000 in a financial year.

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