Section 194J - TDS on fees for professional services or technical services - Income Tax - Ready Reckoner - Income Tax

Section 194J: TDS on fees for Professional services or Fees for technical Services or Royalty or Non-compete Fees or Director Sitting Fees Applicability Any person other than individual or HUF, who is responsible for paying to a resident any sum by way of- fees for professional services [ i.e. specified in section 44AA ] or fess for technical services [ i.e. Explanation 2 of section 9(1)(vii) ] or royalty [ i.e. Explanation 2 of section 9(1)(vi) ] or non-compete fees u/s 28(va) or any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192 , to a director of a company. Shall deduct income tax on income comprised therein. Time of Deduction At the time of credit or payment, whichever is earlier. Rate of TDS 10% However, in the following cases, the rates of TDS shall be 2% instead of 10% (i) Fees for technical services (not being a professional service). (ii) Royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films (iii) Person who is engaged in the business of operation of call centre. Threshold Limit where the amount of such sum or the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed- (i) Rs. 30,000/-, in the case of fees for professional services referred to in clause (a), or (ii) Rs. 30,000/-, in the case of fees for technical services referred to in clause (b), or (iii) Rs. 30,000/-, in the case of royalty referred to in clause (c), or (iv) Rs. 30,000/-, in the case of sum referred to in clause (d). Summary of rates and threshold limit u/s 194J for deduction of tax at source Nature of Payment TDS Rate Separate Limit Fee for technical services (not being professional services) 2% Rs. 30,000/- Fee for professional services 10% Rs. 30,000/- Royalty in the nature of consideration for sale, distribution or exhibition or cinematographic films 2% Rs. 30,000/- Other Royalty 10% Rs. 30,000/- Any remuneration or fees or commission, by whatever name called, other than those on which tax is deductible u/s 192, to a director of a company 10% Nil Non-compete fees 10% Rs. 30,000/- Note - In case of a payee, engaged only in the business of operation of call centre, the tax shall be deducted at source 2%. Note No TDS where amount does not exceed 30,000 during a Financial year for each type of payment referred to in (a) to (d). No TDS is required to be deducted by an individual or HUF for professional fees paid for personal purpose, even if he is subject to tax audit. Meaning of Professional Services - Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board for the purpose of section 44AA or of the section. Other professional notified for the purposes of section 44AA are as follows Profession of authorised representative Profession of Film artist [ Refer explanation (c) of Rule 6F of Income Tax Rules ] Profession of company secretary Profession of Information technology Central Board of Direct Taxes, hereby notifies the services rendered by following persons in relation to the sports activities as Professional Services for the purpose of section 194J , namely: Sports persons Umpires and Referees Coaches and Trainers Team Physicians and Physiotherapists Event Managers Commentators Anchors and Sports Columnists. [ Notification No. 88/2008 date 21.08.2008 ] For the purposes of TDS, therefore, all other professions would be outside the scope of section 194J. For example, this section will not apply to professions of teaching, sculpture, painting etc. unless they are notified. Meaning of Fees for technical Services fees for technical services shall have the same meaning as in Explanation 2 of section 9(1)( vii ); The Fee for technical Services define Explanation 2 of section 9(1)( vii ) means any consideration (including any lump sum consideration) for the rendering of any following services managerial services , technical services or consultancy services (including the provision of services of technical or other personnel) but does not include in Fees for technical Services if any consideration received construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . [ Explanation 2 of section 9(1)( vii ) ] Meaning of the Film artist :- The meaning of film artist has been defined under Explanation (c) of rule 6F means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as (i) an actor; Stunt Artist is not a Actor - No stunt artist is not actor and it does not covers in the meaning of Film artist for the purpose of section 44ADA and section 194J. [ Deputy CIT, (TDS) Circle-2 Vs Movies Stunt Artists Association 2005 (11) TMI 366 - ITAT MUMBAI ] (ii) a cameraman; (iii) a director, including an assistant director; (iv) a music director, including an assistant music director; (v) an art director, including an assistant art director; (vi) a dance director, including an assistant dance director; (vii) an editor; (viii) a singer; (ix) a lyricist; (x) a story writer; (xi) a screen-play writer; (xii) a dialogue writer; and (xiii) a dress designer. The services rendered by hospitals to various patients are primarily medical services and, therefore, provisions of section 194J are applicable on payments made by Third Party Administrator (TPA) to hospitals. [ Circular no. 08/2009 dated 24.11.2009 ] Whether transaction charges paid by the members of the stock exchange for availing fully automated online facility, being a facility provided by the the stock exchange to all its members, constitute fees for technical services to attract the provisions of tax deduction at source under 194J. [ C.I.T. Vs. M/S Kotak Mahindra Securities Ltd. 2016 (3) TMI 1026 - SC ] Consideration for use or right to use of computer software is royalty within the meaning of section 9(1)(vi) As per Explanation 4 to section 9(1)(vi), T he transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. w.e.f. 01.07.2012, The Central Government hereby notifies that no deduction of tax shall be made on the following specified payment under section 194J of the Act, namely:- Payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where- (i) the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification, (ii) tax has been deducted- (a) under section 194J on payment for any previous transfer of such software; or (b) under section 195 on payment for any previous transfer of such software from a non-resident, and (iii) the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor. [ Notification No. 21/2012 Dated 13-6-2012 ] w.e.f. 01.04.2024 the Central Government hereby notifies that no deduction of tax shall be made under the provisions of the Income-tax Act as specified in column (4) of the Table below in respect of the payments, as specified in column (3) of the said Table, made by any payer to a person being a Unit of International Financial Services Centre, (hereinafter referred as payee ), as specified in column (2) of the blow mentioned Table. This exemption is subject to the fulfillment of the conditions specified in Notification No. 28/2024 , dated March 7, 2024. List of payments receivable by a Unit of International Financial Services Centre (IFSC) TABLE Sl. No. International Financial Services Centre (IFSC Unit) (Payee) Nature of receipt Relevant TDS provisions as per Income-tax Act, 1961 (1) (2) (3) (4) 1. Banking Unit Professional fees Section 194J 2. Fund Management entity Professional fee Section 194J 3. Investment advisor Investment advisory fee Section 194J 4. Custodian Professional fee Section 194J 5. Credit rating agency Credit rating fee Section 194J 6. Investment banker Investment banker fee Section 194J 7. Debenture trustee Trusteeship fee Section 194J 8. FinTech Entity Technical fee/Professional fee Section 194J