Section 194J of the Income Tax Act of 1961 provides that an individual should deduct TDS on professional fees paid by the individual to a resident in excess of Rs. 30,000/-

Deductor

The deductor of the TDS for professional fees is a person (other than an individual or a HUF who is not liable for audit pursuant to section 44AB) who pays to the resident:

  • Professional Services Fees
  • Professional Outsourcing Fees
  • Non-competition tax
  • The Royalty
  • Any remuneration or fees or commissions paid to the director, other than those payable as salaries, have also been included in section 194J following an amendment to the Financial Bill in 2012.

Deductee

The deductee is the person who offers the professional services (not necessarily exempt from the services) to another person. Upon deduction of the deductor’s TDS, the deductor shall pay his professional fee.

Rate of TDS on Professional Fees

  1. The rate of TDS on professional fees is 10%.
  2. The TDS rate shall not be applied to the surcharge, the Education Cess, or the SHEC. Therefore, the TDS on commission income will be deducted at the source at the rates mentioned above.
  3. In the event that the deductee has not reached the Permanent Account Number (PAN), the rate of TDS on commission profits would be 20%.

Services as per section 194J

Professional Services

  • Professional services not covered by section 194J shall include:
  • Medical;
  • Juridical;
  • Engineering,
  • The profession of architecture;
  • Professional advisory services;
  • Accounting profession;
  • External decoration;
  • Any other occupation as told by the Board of Directors of 44AA.

Further, Section 194J includes the services of:

  • Sportspersons, Commentators, Anchors, Umpires and Referees, Event Managers, Coaches and Trainers, Physiotherapists, Team physicians, and Sports columnists.

Technical Services

The technical services referred to in section 194J are:

  • Consulting services;
  • Professional services of a kind;
  • Managing facilities.

Services not considered as technical services shall include the following services:

  • Assembly;
  • Mining activities;
  • The building, guy.

Income from these services would also come under the Head of Salary Income.

Non-Compete Fees

Non-Compete Fees as specified in section 194J shall be the amount that is earned by a person who forbids him or her from sharing any Licenses, Franchises, Patents, Trademarks, Know-how, or other Business or Commercial rights, Information or Techniques that may be used elsewhere for manufacturing or processing.

Royalty

Royalty as defined in section 194J means:

  • Usage of innovations, models, trademarks, etc.
  • Grant of rights in respect of an invention, hidden formula, pattern, design, trademark, or patent.
  • Usage or right of use of equipment for industrial, research, or commercial purposes.
  • Sharing any details relating to the use of an invention, patent, formula, etc.
  • Grant of rights relating to literary works, scientific discoveries, films or videotapes for radio broadcast purposes, no allowance for sale, exhibition, or distribution of the same.

Time Limit

The time limit for the deposit of TDS on professional fees:

In the case of Non-Government Assessee

  • Tax for the month of March – 30 April
  • Pay on the other month – the seventh day of the next month.

In the case of Government Assessee

  • In case the tax has to be paid without a call – the same day.
  • In case the tax has to be paid by the Challan – the 7th day of the next month.

It may be noted that, if approved by the Assessing Officer, the deductor may be allowed to deduct TDS on a quarterly basis in some of the special cases.

Exemption

In the following situations, TDS on Professional Fees is not necessary to be deducted:

  1. Where payment is made by an Individual or Hindu Non-Divided Family solely for personal purposes.
  2. If no TDS or TDS has been submitted to the Assessing Officer by the assessor at a lower rate of u / s 197.
  3. No tax shall be deducted if the amount charged or payable as a professional fee during the financial year does not exceed Rs. 30,000/-

Penalty

Delay in Deduction: If a person fails to deduct TDS for professional fees, he or she is liable to pay interest at a rate of 1 % per month or part of a month.

Delay in payment: If a person has deducted TDS from professional fees and has not paid TDS within the time limit, the person is liable to pay interest at a rate of 1.5 percent per month or part of a month for delay in payment.

If you are unsure about TDS Return Filing as a deductor, please feel free to consult the LegalRaasta experts. You can get comprehensive assistance with our TDS Return Filing Software which supports TDS Salary Payment Form24Q, Rent, Interest, Commission, and Other Non-Salary Transactions (Form 26Q), NRI (Form 27Q), and TCS Form27EQ.