TDS on Professional or Technical
Services (Section 194J)
1.
Nature
of payments covered:
- Fees for professional services
- Fees for Technical Services
- Royalty
- Receipts in the nature of
non-compete fees and exclusivity rights as specified u/s 28(va).
- Remuneration
or fees or commission by whatever name called, other than which tax is
deductible under section 192, to a director of a Company.
- Who is liable to
deduct: Any person other than individual and Hindu Undivided Family.
However, individual and HUF are also covered if they are liable to get
their accounts audited u/s 44AB. In other words, individual and HUF, if
their gross receipts/turnover exceed the limits specified in section
44AB, are also liable to deduct tax at source from payments they make.
- Income
Tax should be deducted at the time of payment of such sum or at the
time of credit to the account of the payee whichever is earlier.
Important
Note: As per section 206AA, with effect from 1.4.2010, every person who
receives income subject to TDS under chapter XVIIB (covers all TDS
cases) shall furnish to the deductor, his PAN. If PAN is not so
furnished, the rate of TDS will be at the rates specified in the Act or
at the rates currently in force or at 20% whichever is higher. Please
note that this applies to non residents also.
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- Rate of Deduction:
The present rate of TDS is 10% of the amount paid/credited.
- No deduction in certain cases:
- If
the aggregate amount of payment made/credited or likely to be
paid/credited does not exceed Rs.30,000/- in a financial year (from 1.7.2010). It was Rs.20000 previously.
- Individual
and HUF need not deduct tax at source if they utilize the professional
services only for their personal purposes.
- There
is no threshold limit for payment of remuneration or fees to directors.
Hence, a company would be liable to deduct tax on each and every
payment to director even if total payment during the year does not
exceed Rs.30000
- Professional Services: Areas covered
- Legal
Profession
- Medical
Profession
- Engineering
- Architect
- Chartered
Accountants
- Technical
Consultancy
- Interior
Decoration
- Advertising
- Authorised
Representatives other than employee of the person represented.
Authorised Representative does not mean a chartered accountant or an
Advocate. However, payments to them are also subject to tax deduction.
- Film
artistes including actor, cameraman, director, music director, art
director, dance director, editor, singer, lyricist, story writer,
screenplay writer, dialogue writer, dress designer.
- Company
Secretary
- Profession
of Information Technology.
- Technical Services: Areas Covered
- Rendering
of managerial services.
- Rendering
of technical services.
- Rendering
of consultancy services.
The
above areas exclude consideration for construction, assembly, mining or
similar project undertaken by the recipient. It also excludes payments
which are taxable under the head “Salaries”
- Important Case Laws: Telephone
services are not covered - When a person decides to subscribe
to a cellular telephone service in order to have the facility of being
able to communicate with others, he does not contract to receive a
technical service. What he does agree is to pay for the use of the
airtime for which he pays a charge. The fact that the telephone service
provider has installed sophisticated technical equipment in the
exchange to ensure connectivity to its subscriber does not on that
score make it provision of a technical service to the subscriber. The
subscriber is not concerned with the complexity of the equipment
installed in the exchange, or the location of the base station. All
that he wants is the facility of using the telephone when he wishes so,
and being able to get connected to the person at the number to which he
desires to be connected. What applies to cellular mobile telephone is
also applicable to fixed telephone service. Neither service can be
regarded as ‘technical service’ for the purpose of section 194J of the
Act - Skycell Communications Ltd.
v. Dy. CIT [2001] 251 ITR 53 (Mad.).
- The
Delhi bench of the Income Tax Appellate Tribunal in ITO
Vs. Dr. Willmar Schwabe India (P) Ltd. [2005] 3 SOT 71 examined
the scope of Circular No.715 dt.8-8-1995 on the subject of deduction of
tax at source on expenses reimbursement and upon perusal of the same,
held that reimbursement of expenses for which bill is separately raised
did not attract the provisions of Section 194J.
- Clearing
& Forwarding (C&F) services – TDS: Assessee applied Sec.194C
in respect of payments made to C&F agents.
Assessing Officer (AO) opined that such
services are managerial in nature and Sec.194J is to be applied. Assessee was considered to
be in default for short deduction.
CIT (A) confirmed AO’s action. On appeal before the
Hon’ble Delhi Bench of the Tribunal, it was held that C&F
services were not professional or technical services as mentioned in
Sec.194J and the same are pari materia to
the services mentioned in Sec.194C.
CBDT in its Circular No.720 dt.30.08.1995
provided that various provisions of Chapter XVII relating to TDS are
mutually exclusive and any particular payment could be covered by a
particular section to the exclusion of others.
It was held that C&F services were
covered only 194C and not 194J.
Glaxo Smithklime Consumer Healthcare Ltd. vs. ITO (2007) 12 SOT 221(Del)
11. Tax
deduction at source--APPLICABILITY
OF SECTION 194J--Fees for professional or technical
services--Payment of navigational charges--Where assessee
airline was in fact getting technical services apart from using the
equipments for the purpose of communication between the aircraft and
the air traffic controller, therefore, the provisions of section 194J
would be applicable. Accordingly the assessee ought to have deducted
tax as provided under section 194J in respect of payment made for
navigational facility.--Vide Singapore Airlines Ltd. v. ITO
(2006) 7 SOT 84 (Chen-Trib)
12. Tax
deduction at source--UNDER
SECTION 194J--Payment made to the stunt artists--Where
the stunt artists were rendering services to film producers directly
but payments received from directors/film makers were routed through
their association (being the assessee), which protected their interest
by making payment to its members artists, such an assessee was not
required to make any deduction of tax under section 194J.--Vide Dy.
CIT v. Movies Stunt Artists Association (2006) 6 SOT 204 (Mum-Trib)
- Important Circulars:
Fees received from abroad
- In respect of fees for professional services received from
foreign companies or foreign law and accountancy firms, any fees paid
through regular banking channels to any chartered accountant, lawyer,
advocate or solicitor who is resident in India by non-residents who do
not have any agent or business connection or permanent establishment in
India may not be subjected to deduction of tax at source under section
194J.—Circular : No. 726, dated
18-10-1995.
- Payments to recruitment
agencies are in the nature of payments for services rendered, and hence
will be subject to TDS under section 194J of the Act, and not under
section 194C of the Act. Circular : No. 715, dated 8-8-1995.
- Payments made by a company
to a share registrar will also similarly be liable to tax deduction at
source under section 194J and not under section 194C.
- Payments made to a hospital
for rendering medical services will attract deduction of tax at source
under section 194J.
- Commission
received by the advertising agency from the media would require
deduction of tax at source under section 194J.
- Payments to a director:
A director is also a manager under the provisions of the Companies Act,
1956. He is, therefore, technical personnel. Any payment made to such
director (be it sitting fee or any other sum) shall be required to be
taken into consideration for the purposes of deduction of tax at source
under section 194J.
- TDS on the Service Tax Component Also:
The payments made under section 194-I differ significantly from payment
made under section 194J in the way that in the case of 194-I TDS has to
be deducted on any income paid as rent. However, in the case of section
194J TDS has to be deducted on any sum paid as professional and
technical fees. The Board had decided to exclude TDS on service tax
component on rental payment because it was construed that service tax
payment cannot be regarded as income of the landlord. Since section
194J covers any sum paid, therefore the board has decided not to extend
the scope of Circular No. 4/2008, dated 28-4-2008 to such payment under
section 194J.--Vide Circular F.No. 275/73/ 2007-IT(B), dt. 30-6-2008.
-
Third
Party Administrator (TPA) making payment to hospitals is liable to deduct tax
under Section 194J:
In Dedicated Health Care Services TPA (India)
(P) Ltd & Ors. V. Asstt. CIT & Ors. (2010) 324 ITR 0345 (Bom-HC), Petitioners
1 to 5 were registered with IRDA under the Third Party Administrator Health
Services Regulations 2001 framed under the provisions of sections 14 and 26 of
the Insurance Regulatory and Development Act read with section 114A of the
Insurance Act. The Sixth Petitioner was a trust registered under the Indian
Trusts Act 1882 and had been constituted by Third Party Administrators (TPAs).
All claims payable by the insurance company to the policy holder are paid
through TPA. The issue is whether while making payments to hospitals, TPAs are
required to deduct tax at source under section 194J or not. It was held that
where the provision of medical services takes place within the institutional
framework of a hospital, services are rendered as part of an umbrella of
services provided by the hospital which engages qualified medical
professionals. These are the services rendered in the course of carrying on of
medical profession. Hence, TPAs have to deduct tax at source under section 194J
when they make payments to hospitals.
Other Issues on Indian Income Tax Deducted At
Source: Introduction
Contractor
Payments(Sec 194C) Interest
Other than Interest on securities Interest
on Securities(Sec 193) TDS
on Commission TDS
on Rent TDS
on Other Sums TDS
on Salaries(Sec 192)
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All the information provided above is for informative purposes only.
You are advised to consult your tax consultant before you act upon any
of the above information. In spite of this, if any person acts upon
this information and suffers any loss, we are not to be held liable.
Though all efforts have been made to provide latest information, you
are advised to check latest circulars, latest changes in law etc from
the Indian Income Tax Department.
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