According to the rules and regulations of Section 194J of the Income Tax Act, 1961, a person must deduct their Tax Deducted at Source (TDS) only at the rate of 10% when certain payments are made to a certain resident.
Types of payments covered under Section 194J
An individual should deduct TDS at the rate of 10% when the following payments are made to a resident, in a fiscal year (higher than Rs.30,000):
- Amount charged as professional services fee
- Amount charged as technical service fee
- Non-compete fee according to the Income Tax Act of Section 28(VA)
- It implies the services carried out by an individual in the medical, architectural, legal, medical or engineering profession. Other services include accountancy, interior decoration, advertising, technical consultancy or any other profession that is accepted by the Board under Section 44AA.
- Other services that are accepted under Section 44AA are film artists, company secretaries, and authorized representatives.
- Sportspersons, event managers, commentators, anchors, umpires and referees, coaches and trainers, physiotherapists, team physicians and sports columnists also come under it.
It implies the services rendered by an individual for consultancy, technical or managerial services.
Services such as assembly, mining, construction are not considered as technical services as income from the same would come under the head salary of the recipient.
Non Compete Fees
Non-Compete Fees for Section 194J implies the amount received either in cash or kind in return for an agreement that binds the person from sharing any patent, license, franchise, trademark, know-how or any commercial or business rights, technique or information likely to be used elsewhere for manufacture, processing or any other provisional service.
Royalty for the purpose of this section means consideration for:
- Transfer of rights for an invention, secret formula, model, design, trademark or patent.
- Use of an invention, model, patent, etc.
- Sharing any information related to the use of an invention, patent, formula, etc.
- Use or right to use the equipment for industrial, scientific or commercial purposes.
- Transfer of rights related to literary work, scientific findings, films or videotapes for radio broadcasting, no consideration for the sale, exhibition or distribution of the same.
TDS deduction is also applicable under Section 194J on certain specific cases, decided by the case laws and circulars of the department:
- Medical services rendered in hospitals.
- Professional fees charged by film artists from advertising agencies.
- Amount given to recruitment agencies and HR consultancy.
- Payment made by companies to share registrars.
Key Points in Section 194J on TDS
- Under Section 194J, Rs.30,000 is the maximum limit which is applicable to each item or payment independently.
- TDS under this section is also applicable on commission or remuneration or fees given to a company’s director, even though the amount is not a part of the main salary. In these cases, the Rs.30,000 limit is not applicable.
Applying for TDS at a Lower Rate
According to Section 197, the person receiving payment can apply for a reduction of rate in TDS, by filling in Form 13 and sending it to the assessing officer.
If approved by the officer, a certificate stating a deduction in the TDS is issued to the assessee.
Time Limit to Deposit TDS under Section 194J
The following guidelines on time limit for depositing TDS under the section must be followed:
- If the TDS deduction under Section 194J is made by the government or on behalf of the government, the deposit has to be made on the same day.
- In other cases, TDS can be deposited within a week from the month-end in which the tax deduction has been made.
- If the payment is made on the last day of the fiscal year, the TDS deposit must happen within two months from that financial year’s end in which it was credited.
- Some special cases may be allowed to deduct TDS every quarter, provided the assessing officer has approved.