In the Indian taxation regime, the concept of Tax Deducted at Source (TDS) plays an important role in ensuring that various taxes are collected at the source of income. One of the most important provisions for professionals, consultants, and businesses making payments for professional or technical services is Section 194J of the Income Tax Act, 1961.
This section mandates that TDS be deducted on payments made for professional services, technical services, royalties, and certain non-compete fees. Let’s understand in a comprehensive manner the various important elements of applicability, rate, threshold limits and the compliance requirements of Section 194J.
What is Section 194J of the Income Tax Act?
Section 194J provides that any person who is other than an individual or HUF not liable for tax audit and who pays the particular fees for the professional or technical services must deduct TDS at the time of the credit or payment, whichever is earlier.
In simple words, whenever a business or any other organisation makes a specific payment for particular services, such as legal consultation, technical assistance or professional advice, a specific percentage of TDS must be deducted and deposited with the government.
Who is Liable to Deduct TDS under Section 194J?
The responsibility to deduct TDS under Section 194J lies with:
- Companies
- Firms
- Trusts
- AOPs/BOIs
- Individuals or HUFs (only if they are subject to tax audit under Section 44AB in the preceding financial year)
If you are a salaried individual or a small business, you are not liable to audit, and you are not required to deduct the TDS under this section.
When is TDS Deducted under Section 194J?
TDS under Section 194J should be deducted at the earlier of the following two events:
- When the amount is credited to the payee’s account (even if not actually paid yet), or
- When the amount is actually paid in cash, cheque, or any other mode.
This ensures that TDS liability arises even if the payment is just recorded as payable and not yet disbursed.
Applicability and Types of Payments Covered
Section 194J covers several types of payments made to professionals and technical service providers. These include:
- Fees for Professional Services – Payments made to professionals, such as:
- Lawyers, Chartered Accountants, Company Secretaries
- Engineers, Architects, Doctors, Consultants
- Management or advertising professionals
- Fees for Technical Services – Payments for managerial, technical, or consultancy services, including IT, software, and technical advisory.
- Royalty – Any payment for the use of intellectual property such as copyrights, trademarks, patents, or software.
- Non-Compete Fees – Any payment made to refrain from carrying out competing business activities.
- Remuneration or Fees to Directors (other than salary) – Any sitting fees, commission, or consultancy payments made to company directors.
TDS Rates under Section 194J
The rate of deduction under Section 194J depends on the nature of service provided:
| Nature of Payment | TDS Rate (%) |
| Fees for professional services | 10% |
| Fees for technical services | 2% |
| Royalty (for copyright of literary, artistic, or scientific work) | 10% |
| Royalty (other than above) | 10% |
| Non-compete fees | 10% |
| Remuneration/fees to directors (other than salary) | 10% |
Note: If the payee fails to provide the essential and valid document proof such as PAN, TDS must be deducted at the rate of 20% as per Section 206AA…!
Threshold Limit for TDS under Section 194J
TDS is applicable only when the total amount paid or payable to a person during a financial year exceeds the limit of ₹30,000.
However, this limit applies separately for each category:
- ₹30,000 for professional fees,
- ₹30,000 for technical fees,
- ₹30,000 for royalty, and
- ₹30,000 for non-compete fees.
If payments are made under multiple categories, each limit applies independently.
Due Date for Deposit of TDS
After deduction, the deductor must deposit the TDS to the government within the following timelines:
| Period of Deduction | Due Date of Deposit |
| April – February | 7th of the next month |
| March | 30th April of the next financial year |
TDS Return and Certificate Compliance
After depositing the TDS, the deductor must:
1. File TDS Return in Form 26Q on a quarterly basis, within the following due dates:
| Quarter | Due Date |
| April – June | 31st July |
| July – September | 31st October |
| October – December | 31st January |
| January – March | 31st May |
2. Issue TDS Certificate (Form 16A) to the deductee within 15 days from the due date of filing Form 26Q.
Non-Compliance and Consequences
Failure to deduct or deposit TDS on time can lead to severe consequences:
1. Interest under Section 201(1A):
- 1% per month from the date TDS was deductible to the date it is actually deducted.
- 5% per month from the date of deduction to the date of deposit.
2. Disallowance of Expense under Section 40(a)(ia):
- 30% of the expenditure on which TDS was not deducted or not deposited will be disallowed as a business expense.
3. Penalty and Prosecution:
- A penalty equal to the amount of TDS may be imposed.
- In severe cases, prosecution may be initiated under the Income Tax Act.
Exemption from TDS under Section 194J
TDS under Section 194J is not applicable in the following cases:
- When the payee is an individual or HUF, and the payer is not liable for tax audit.
- When the total payment during the financial year does not exceed ₹30,000.
- When the payment is made to a government body or any institution exempt from income tax.
- When payments are made for personal purposes by individuals or HUFs.
Key Differences between Section 194J and Section 194C
Many taxpayers confuse Section 194J (Professional/Technical Fees) with Section 194C (Contract Payments).
| Basis | Section 194J | Section 194C |
| Nature of Work | Professional, technical, consultancy services | Contractual work or job work |
| TDS Rate | 10% / 2% | 1% (individual/HUF), 2% (others) |
| Threshold | ₹30,000 | ₹30,000 |
| Example | Lawyer, CA, engineer | Transporter, contractor, event organizer |
Conclusion
The provision of Section 194J is one of the most important TDS provisions for businesses and professionals in India. It ensures the element of transparency, trust, accountability and also timely collection of the taxes on income which arises from the professional and technical services, so you need to be careful about the compliance of this provision.
To remain compliant:
- Deduct TDS correctly at applicable rates,
- Deposit it within the due date,
- File accurate TDS returns, and
- Issue certificates on time.
The act of Non-compliance may lead to penalties and loss of deductions; hence, businesses should maintain proper records, data and timely filings to avoid the various future complications.
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