FAQs on TDS on Fees For Professional Or Technical Services-Section 194J

Q.1. Who is liable to deduct TDS u/s 194J?

A.1. Any person, other than in individual or a HUF, who is responsible for paying to a resident any sum by way of:-

1.   Fees for professional services,

2.   Fees for technical services,

3.   Any remuneration or fee or commission by whatever name called paid to a director, which is not in the nature of salary (w.e.f. 1.7.2012)

4.   Royalty,

5.   Any sum referred to in clause (va) of section 28 which relates to non-complete payment, or

6.   Shall deduct income tax on income comprised therein.

7.  However, an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or professional carried on by him exceed the monetary limits specified under clause (a) or clause(b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall also be liable to deduct income-tax under this section. [Proviso 2 to section 1 94J(1)].

Q.2. What is the point of deduction of TDS u/s 194J?

A.2. Tax is to be deducted either at the time of actual payment of such fees or its credit to the account of the payee whichever is earlier.

Q.3. At what rate tax to be deducted u/s 194J? 

A.3. 10% on such income.

Notes:

1.    No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.

2.    The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee on or after 1-4-2010.

Q.4. Under what circumstances there is no need to deduct TDS u/s 194J?

A.4. There is no need to deduct TDS u/s 1 94J where the amount of such sum or, as the case may be, 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 above.

(ii)     Rs. 30,000 in the case of fees for technical services referred to above.

(iii)    Rs. 30,000 in the case of royalty referred to above.

(iv)   Rs. 30,000 in the case of non-complete fee referred to above.

Q.5. What is the meaning of professional Services in reference to S. 194J?

A.5. Explanation (a) to Section194J provides that ‘Professional Services’ means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.

Q.6. What is the meaning of Expression “fees for technical services” in reference to section 1 94J?

A.6. Explanation (b) to Section1 94J provides that “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub­section (1) of section 9, which provides “fees fortechnical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.

Q.7. What is the meaning of “Royalty” in reference to S. 194J?

A.7. Explanation (ba) to Section194J provides that “royalty” shall have the same meaning as inExplanation 2 to clause (vi) of sub-section (1) of section 9, which provides that “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—

(i)    the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(ii)    the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iii)     the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;

(iv)     the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB

(v)    the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or

(vi)    the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and] (v).

To further clarify meaning of royalty explanation 4, 5 and 6 inserted to Explanation 2 to clause (vi) of sub-section (1) of section 9, vide Finance Act, 2012, which are as under:

“Explanation 4.—For the removal of doubts, it is hereby clarified that the 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 license) irrespective of the medium through which such right is transferred.

Explanation 5.—For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—

(a) the possession or control of such right, property or information is with the payer;(b) such right, property or information is used directly by the payer;

(c) the location of such right, property or information is in India.

Explanation 6.—For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fiber or by any other similar technology, whether or not such process is secret;”

Q.8. Whether provisions of S. 194J are applicable to Transaction charges paid by assessee-stock broker to Stock Exchange?

A.8. Transaction charges paid by assessee-stock broker to BSE in respect of transactions carried out through BOLT system constituted fees for technical services under section 194J read with Explanation 2 to section 9(1)(vii) and, hence, assessee was liable to deduct tax at source before crediting transaction charges to account of stock exchange. CIT v. Kotak Securities Ltd.* [2011] 15 taxmann.com 77 (Bom.)also refer DCIT v Angel Broking Ltd (20 10)35 SOT 457(Mum).

Q.9. Whether provisions of S. 194J are applicable to payments made for
rendering services in course of carrying on medical profession?

A.9. Payment is made to a recipient for rendering services in course of carrying on medical profession or other professions as stipulated in section 194J, deduction of tax at source has to be made and it is immaterial whether recipient is an individual, firm or an artificial person. Vipul Medcorp TPA (P.) Ltd. v. Central Board of Direct Taxes [2011] 14 taxmann.com 13 (Delhi)

Q.10. Whether provisions of S. 194J are applicable to service provided by MTN L/BSN L for services of interconnect/port/access/toll?

A.1 0. The expression ‘fees for technical services’ as appearing in section 1 94J would have reference to only technical service rendered by a human; it would not include any service provided by machines or robots. Therefore service provided by MTNL/BSNL for services of interconnect/ port/access/toll would not fall within the purview of payments as provided for under section 1 94J, so as to be liable for tax deduction at source. CIT v. Bharti Cellular Ltd.[2008] 175 TAXMAN 573 (DELHI) However, the Apex Court remitted the matter to the Assessing Officer, directing him to examine the case with the help of a technical expert to study whether any human intervention is involved. [CIT v Bharti Cellular Ltd. & Hutchison Essar Telecome Ltd. (2011) 330 ITR 239 (SC)] see also HFCL Infotel Ltd. v. ITO [2006] 99 TTJ (Chd.) 440

Q.11.Whether tax deductible u/s 194J on payments made to person engaged in business of providing cellular mobile telephone facility?

A.1 1. Payments made to person engaged in business of providing cellular mobile telephone facility by subscribers, being firms and companies, are not covered by definition of ‘fees for technical services’ in section 194J, read with Explanation 2 to section 9(1)(vii) and as such no tax is required to be deducted at source on such payments by subscribers. Please refer Skycell Communications Ltd. v. Dy.CIT [2001] 119 TAXMAN 496 (MAD.)

Q.12.Whether tax deductible u/s 194J on payment made to a stockist appointed for sale on commission basis?

A.12. Section 194J is not applicable to a stockist appointed by drug manufacturer for sale of drugs on commission basis. Please refer Piramal Healthcare Ltd. v. ACIT(TDS) [2012] 21 taxmann.com 225 (Mum.)

Q.13. Whether TDS u/s 194J deductible on various services provided during the course of carrying of Medical profession?

A.13. Maintaining operation theatre and surgical equipments, RO system, CT scan machine, MRI machine, medical equipments and providing service of lift sterlisation and anti-termite treatment in a hospital, would amount to rendering technical and professional services. Please refer ITO (TDS) v. Accounts Officer, Govt. Medical College, Jammu*[2012] 22 taxmann.com 149 (Asr.)

Q.14. Whether the services rendered by news agencies to newspaper Company shall attract TDS u/s 194J?

A.14. Payments made by newspaper Company to news agencies is liable for deduction of tax at source under section 1 94J. Please refer ACIT v. Ushodaya Enterprises (P.) Ltd.* [2012] 23 taxmann.com 258 (Hyd.)

Q.15.  Whether payments made to hospital for medical services provided by it shall attract TDS u/s 194J?

A.15. Where ‘assessee-trust acted as a nodal agency for State of Andhra Pradesh to provide health care coverage to individuals, payments made to hospitals by assessee for medical services received by hospitals were liable to TDS u/s 194J’. Please refer Arogya Sri Health Care Trust v.ITO [2012] 20 taxmann.com 539 (Hyd.) (see also Medi Assist India TPA (P) Ltd. v DCIT (T DS) (2009) 184 Taxman 359 (Kar)

Q.16. Whether payment made directly to any actor on account of composite agreement entered into for financing film project shall attract TDS u/s 1 94J?

A.16. Contractors/sub-contractors payment to’ and further having regard to fact that even if assessee had made payment directly to any actor or any person connected with film making then it was only out of composite agreement entered into for financing film project, it could not be concluded that payment made directly by assessee attracted provisions of section 1 94J, Please refer Entertainment One India Ltd. * v. ITO (TDS) [2010] 126 ITD 491 (MUM.)

Q.17. Whether non resident not having PE in India, making payments to CA, Lawyer, advocate or solicitor are required to deduct TDS u/s 194J?

A.17. Any fees paid through regular banking channel to any Resident – CA, Lawyer, advocate or solicitor by a Non Resident who do not have any agent of business connection or permanent establishment in India, may not be subject to the provisions of tax deduction at source u/s 194J. However Foreign Companies & and accounting firms are required to sent quarterly statement stating names and address of the person to whom the payments are made to the Deputy Secretary, Foreign tax Division, CBDT, Department of Revenue, Ministry of Finance, New Delhi. Please refer Circular No. 726, dated 18/10/1995.

Q.18. Whether TDS u/s 194J is also deductible on reimbursements?

A.18. TDS u/s 194C & 194J refer to any sum paid i.e including reimbursements – applicable only in cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses.Circular No. 715 dated 08/08/1995. Further Circular No. 720 dated 30/8/1995 provides that the provision of sec 194 C &194J is not applicable – where bills were raised separately by the consultants for reimbursements of actual expenses incurred by them. ITO vs. Dr. Willmar Schwabe India (P) Ltd (2005) 95 TTJ (Del.)53.

Q.19. Whether charges paid to International Airport Authority of India for navigational facilities, shall attract TDS u/s 194J?

A.19. Where assessee-airlines paid charges to International Airport Authority of India for navigational facilities, such payments attracted section 194J. Singapore Airlines Ltd. v. ITO [2006] 7 SOT 84 (Chennai)

Q.20. Where assessee, a non-resident company, set up a liaison office in India in and appointed consultants – whether tax deductible u/s 192 or 194J?

A.20. Where assessee, a non-resident company, set up a liaison office in India in and appointed six persons as consultants pursuant to agreements, as there was no employer-employee relationship between assessee­company and consultants, case was governed by section 1 94J and not section 192. Please refer Dy CIT v. Coastal Power Co. [2006] 9 SOT 89 (Delhi)

Q.21. At what rate TDS deductible u/s 194J by an advertising agency making payments for professional services to a film artist?

A.21. Where an advertising agency makes payments for professional services to a film artist such as an actor, a Cameraman, a director etc, tax will be deducted at the rate of 5%. Please refer Circular No. 714, dated 03/08/1995.

Q.22. Whether the services of a regular electrician on contract basis will fall in the ambit of technical services to attract the provisions of section 194J of the Act? In case the services of the electrician are provided by a contractor, whether the provisions of section 194C or 194J would be applicable?

A.22. The payments made to an electrician or to a contractor who provides the service of an electrician will be in the nature of payment made in pursuance of a contract for carrying out any work. Accordingly, provisions of section 194C will apply in such cases. Please refer Circular No. 715, dated 08/08/1995.

Q23. Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act?

A.23. Routine, normal maintenance contracts which includes supply of spares will be covered under section 1 94C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source. Please refer Circular No. 715, dated 08/08/1995.

Q.24. Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses?

A.24. Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source. Please refer Circular No. 715, dated 08/08/1 995.

Q.25. Whether TDS u/s 194J deductible on payment made for purchase of course or study material?

A.25.  NO, Please refer ACIT v Frontline Software Services (P) Ltd. (2009) 24 DTR 232 (Ind-Trib)

Q.26. Whether the provision of TDS u/s 194J applicable to payments made for facilities of bandwidth and internet?

A.26.   Since bandwidth and net working operating facilities for VSNL/MTNL were standard facilities and were not in the nature of technical services with the meaning of section 194J the assessee would not be liable to deduct tax at source under section 1 94J. Please refer – Pacific Internet(India) (P) Ltd. v. ITO TDS Mumbai (2009) 27 SOT 523 (Mum)]

Extract of Section 194J of The Income Tax Act

TDS ON FEES FOR PROFESSIONAL OR TECHNICAL SERVICES

194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—

(a)fees for professional services, or

(b)   fees for technical services, [or]

[(ba) 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; or]

[(c) royalty, or

(d) any sum referred to in clause (va) of section 28,]

shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein :

Provided that no deduction shall be made under this section—

(A)from any sums as aforesaid credited or paid before the 1st day of July, 1995; or

(B)  where the amount of such sum or, as the case may be, 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)  [thirty thousand rupees], in the case of fees for professional services referred to in clause (a), or

(ii)   [thirty thousand rupees], in the case of fees for technical services referred to in [clause (b), or]

(iii)    [thirty thousand rupees], in the case of royalty referred to in clause (c), or

(iv)        [thirty thousand rupees], in the case of sum referred to in clause (d) :]

[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :]

[Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.]

Explanation—Forthe purposes of this section,—

(a)“professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

(b)   “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

[(ba) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;]

(c) where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books  of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.

Note in respect of Amendment brought u/s 194J vide Finance Act 2012 – Section 194J (1)(ba) – [Newly Inserted w.e.f. 1^st July, 2012]

“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; or

Notes to clause:

The existing provisions in sub-section (1) of the aforesaid section 194J provide that a person, not being a individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services, fees for technical services royalty or sums referred to in clause (va) of section 28 shall deduct an amount equal to 10% of such sum as income tax. It is proposed to amend the aforesaid sub-section (1) to insert a new clause (ba) so as to provide that the person referred to in sub-section (1) of the aforesaid section who is responsible for paying to a director of a company any sum by way of any remuneration or fees or commission, by whatever name called (other than those on which tax is deductible under section 192), shall deduct an amount equal to 10% in accordance with the provisions of the aforesaid section.

Memorandum Enplaning Finance Bill 2012

Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including Managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary.

It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 1 0% of such remuneration.

Brief of Amendment

The amendment is proposed to provide for deduction of tax at source @ 10% by a company in respect of remuneration or fees or commission by whatever  name called, paid to a director which is not in the nature of salary and it will be considered as fees for professional or technical services.