Section 194J (194JA/194JB) of Income Tax Act provides the provision for deduction of TDS while making payment to residents for availing profession or technical services. For the purpose of TDS, section 194J provides the TDS rate which is to be used for deducting tax.

If you are availing services of professional or technical then you must read this article because if you do not deduct TDS as per the provision / conditions prescribed in this section then you might be levied with penalty / interest later on.

Here we have explained in detail about Section 194J (194JA/194JB) of Income Tax Act:

     

    What is section 194J of Income Tax Act?

    Section 194J of Income Tax Act 1961 provides that where any person (not being individual or HUF) who is availing professional services or technical services is liable to deduct TDS while making the payment for such services.

    TDS Section 194J (194JA/194JB) of Income Tax Act

    It is important to be noted that as per this section 194J the payment for such services must be made to residents.

    Generally an individual or HUF is not liable to deduct TDS while making payment for the said services but there are some exceptions to this which is discussed in this article.

     

    What are the types of payments/expenses covered under section 194J?

    For the deduction of TDS under section 194J, you have to deduct TDS if you are making the following payment to a resident:

    • Professional fees (like fees for the services availing for legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, film artist, CA/CS etc.)
    • Fees for technical services (like fees for managerial services, consultancy services etc)
    • Payment of Director’s remuneration / fees / commission (excluding salary) Eg. Visiting fees to attend board meetings
    • Royalty
    • Payment for non-compete fees or fees paid to not share technical know-how.

    If you are paying such types of payment then you are liable to deduct TDS under section 194J.

    Also Read: Section 194N of Income Tax Act (TDS on Cash Withdrawal)


    Who is liable to deduct TDS under section 194J?

    As per section 194J, any person (not being an individual or HUF), who is availing professional services or technical services and making the payment for the services availing then while making payment that person is liable to deduct TDS.

    Generally Individual / HUF are not liable to deduct TDS under section 194J but following are the exceptional cases where Individual or HUF is also liable to deduct TDS under section 194J.

    • In case of Individual or HUF is carrying on business and his turnover exceeds Rs.1 crore during the previous financial year.
    • In the case of Individual or HUF is carrying on a profession and his turnover exceeds Rs.50 lakh during the previous financial year.

    It is to be noted that Individual or HUF is only required to deduct TDS on fees for professional or technical services, if turnover limits exceed.

    But an individual or HUF is not liable to deduct TDS other than professional or technical services like royalty or non-compete fees, whether turnover limit exceeds or not.

    And also, if professional technical services are availing for personal purpose and not for business purpose then individual or HUF is not liable to deduct TDS.

     

    What is the threshold limit under section 194J?

    TDS under section 194J is to be deducted when the amount of fees (or aggregate of amounts of fees) credited or paid or likely to be credited or paid during the financial year exceed Rs.30000.

    • Point to be noted is that the limit of Rs.30000 is applicable separately for the all mentioned services.
    • If payment does not exceed Rs.30000 during the year then no TDS to be deducted.
    • Point to be noted this limit of Rs.30000 is not applicable for the payment of Director’s remuneration / fees / commissions. So in this case TDS to be deducted whether it exceeds Rs.30000 or not.

    Example:

    A Ltd makes a payment of Rs.22000 for professional services and Rs.35000 for technical services from Mr. X. Now A Ltd is not liable to deduct TDS on professional services because it does not exceed Rs.30000 but for technical services, the company is liable to deduct TDS.

    Also Read: Section 194M: (TDS on Payment to Contractors and Professionals)

     

    What is the rate of TDS under section 194J?

    TDS rate under section 194J is specified for the different services.

    Nature of Payment

    TDS Rate

    Fees for Professional Services

    10%

    Fees for Technical Services

    2%

    Royalty

    10%

    Director’s Remuneration/ Fees/ Commission

    10%

    Non-Compete Fees

    10%

    Note:

    Royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films has TDS rate of 2%

    If payee engaged only in business of operation of call center then TDS Rate is 2%

    In case PAN is not furnished by payee then TDS Rate 20%.

     

    What is section 194JA & 194JB of Income Tax Act’1961?

    There is no such section 194JA and 194JB in Income Tax Act 1961. There is only section code used for disclosure purposes.

    Earlier under section 194J for all the payment 10% TDS Rate is used, but a new rate of 2% is provided in Finance Act 2020.

    In the Finance Act 2020, an amendment was made in respect to reducing the rate of 10% for fees for technical services to 2%. Now under section 194J TDS Rate i.e. 10% and 2% is used for various payments.

    For the purpose of filing e-TDS returns two codes are used i.e. 194JA and 194JB to distinguish the rates and nature of payment.

    Code 194JA is used for 2%

    Fees for technical services, royalty for sale, distribution or exhibition of cinematographic films and call centers

    Code 194JB is used for 10%

    Fees for professional services, royalty, non-compete fees, director’s remuneration etc.

    Also Read: Section 194O: (TDS on Payments to E-CommerceParticipants)

     

    What is the time limit for deduction and payment of TDS under section 194J?

    Under section 194J, TDS should be deducted at the time of

    • Passing such entry in the accounts (Crediting the amount) OR
    • Making the payment

    whichever is earlier.

    After deducting TDS it is very important to deposit the tax amount to the government.


    If you are a Non-government deductor:

    For the months of April to February

    TDS to be deposited on the 7th day from the end of the month.

    For the March month

    TDS deducted in March must be deposited till 30th April.

     

    If you are a government deductor:

    For the months of April to February

    TDS to be deposited 7th day from the end of the month.

    For the March month

    To be deposited the same day as TDS deducted but challan is deposited by the 7th day from the end of the month.

     

    What are the penalty / consequences for non-deduction or late deduction of TDS under section 194J?

    If you are not deducting TDS or late deduction of TDS then following are the consequences:

    • 30% of the expenses will be disallowed.
    • If TDS is not deducted then you have to pay interest 1% per month/part of month from the date which TDS is required to be deducted till the date it is actually deducted.
    • If TDS deducted by not paid to government on time, then interest shall be levied at 1.5% per month/part of month from the date on which it is deducted upto the date of depositing the amount to the government.

     

    Summary

    Section 194J (194JA/194JB) of Income Tax Act provides the TDS related to professional or technical services. And while making payment for such services, you have to deduct TDS under section 194J at the rate 10% or 2% as applicable and then deposit the TDS to the government.

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