TDS (Tax Deduction at Source)
TDS stands for Tax deduction at source. TDS was implemented to curb the evasion of tax by deducting tax at source only. Under this arrangement, the person who is paying money to someone will deduct some amount from amount payable, deposit it to government and the person of whom such sum was deducted shall claim it while filing Income Tax Return.
Section 194J – TDS on Professional Services, Technical Services, Royalty, Director Fees and Non-compete fees
Provisions of section 194J requires every person to deduct TDS on the following payment made to a resident person –
- Fees for professional services;
- Fees for technical services;
- Royalty;
- Remuneration / fees / commission paid to director of the company (excluding salary);
- Fees paid for not carrying out any activity in relation to any business or profession;
- Fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of alike nature.
Note: Remuneration paid to director shall be liable to TDS u/s 192 i.e. TDS on salary. Only amount paid as fees to director shall be liable to TDS u/s 194J.
Professional services meaning
As per 194J Professional Services means services rendered by a person in the course of carrying on profession of
- Medical
- Legal
- Engineering
- Architectural
- Accountancy
- Technical consultancy,
- Interior decoration,
- Advertising,
- Company Secretary,
- Film artist or
- Authorised Representative
- Following professional Services related to sports activities have been notified by CBDT for Section 194J
- Sports Persons, Sports Columnists, Trainers and Coaches, Team Physicians., Anchors, Commentators, Event Managers, Physiotherapists, Referees and Umpires.
Persons required to deduct TDS u/s 194J
Payer: Every person, except Individual and HUF whose gross receipt in the preceding year did not exceed Rs 1 crore in case of business or Rs 50 Lakhs in case of profession.
Note: No TDS to be deducted by Individual or HUF for professional fees paid for personal purpose, even if his turnover exceeds the above mentioned limits.
Payee: Any Resident
Thus, section 194J is not applicable in case of payment of interest to a non-resident. If such payment is made to non-resident then tax will be deducted under section 195.
Which is the due time for deduction?
At the time of credit or payment, whichever is earlier.
Rate of TDS
- Payment made by Person engaged only in business of operation of Call center: 2 %. If the payee doesn’t furnish his PAN, then TDS is to be deducted at the rate of 20%
- Payment made by any other person: 10 %. If the payee doesn’t furnish his PAN, then TDS is to be deducted at the rate of 20%
- No surcharge, education cess or SHEC shall be added to the basic rates
Threshold Limit
No TDS where amount does not exceed Rs 30,000 in a financial year. The limit of Rs 30,000 is for each type of payment. However, this threshold is not applicable for payment made for director’s fees.
Note: If the aggregate amount of brokerage or exceed Rs 30,000 in a financial year then TDS will be deducted on the entire amount paid during the financial year.
Frequently Asked Questions
Q. Is TDS applicable on legal services like services of Chartered Accountant, Advocate etc?
A. Yes, TDS is applicable on legal services if the aggregate amount exceeds INR 30,000 during the financial year.
Q. Should a person deduct TDS if the consultancy services of a professional are availed for the personal use?
A. No, the taxpayer is not required to deduct TDS for the services availed for personal use.
Q- Whether TDS needs to be deducted on amount inclusive of GST?
A- No, TDS needs to be deducted only on basic value i.e. Value excluding GST.
Written by : Viral Jain
