Income Tax Query

TDS on Professional Fees (Section 194J)  


Nature of Payments Covered: 

a.   Fees for Professional Services 

b.   Fees for Technical Services 

c.   Royalty 

d.   Receipts in the nature of non-compete fees and exclusivity rights as specified under section 28(va) 

e.   Remuneration or fees or commission by whatever name called, other than income by way of salary under section 192, to a director of the Company. (for payment to director, no minimum threshold is provided. Hence, tax need to be deducted even when the payment is less than the threshold for other payments, Rs.30,000. 


Who is liable to deduct: Liability is on any person other than individual and Hindu Undivided Family.   


Liability to deduct TDS on Individual/HUF in case of fee for professional/technical services based on turnover criteria: However, any individual, Hindu Undivided Family is liable to deduct tax at source under this section when total sales, gross receipts or turnover from business or profession carried out by him exceeding Rs.1 Crore in the case of business or Rs.50 Lakh in case of profession during the financial year immediately preceding the financial year in which the sum is credited or paid. It is to be noted that this is applicable only to payment of fees for professional services or technical services as specifically mentioned in the section. It is not applicable to royalty, non-compete fee or payment to directors. 


Time of deduction: 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. 


Rate of deduction:  

Ø  10% on the amount paid or credited (from 14.05.2020 to 31.03.2021, the rate is 7.5%).  

Ø  In case of a payee engaged only in the business of operation of call centre, the rate of deduction of tax is 2% (from 14.05.2020 to 31.03.2021, the rate is 1.5%). 

Ø  In case of fees for technical services, at the rate of 2% (from 14.05.2020 to 31.03.2021, the rate is 1.5%). 

Ø  In case of royalty in the nature of consideration for sale, distribution, or exhibition of cinematographic films, at the rate of 2% (from 14.05.2020 to 31.03.2021, the rate is 1.5%). 


No deduction in certain cases: 

a.   The amount paid/credited or the aggregate amounts paid/credited does not exceed Rs.30,000 during a financial year. 


This above threshold is not applicable for payment to directors. In effect, there is no threshold for payment to directors. 

b.   Individual and HUF need not to deduct tax if they utilise the professional services only for their personal purposes. 


Professional Services-Areas covered: 

a.   Legal Profession 

b.   Medical Profession 

c.   Engineering 

d.   Architect 

e.   Chartered Accountant 

f.     Technical Consultancy 

g.   Interior Decoration 

h.   Advertising 

i.     Authorised Representative 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. 

j.     Film Artistes including actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screenplay writer, dialogue writer, dress director. 

k.   Company Secretary 

l.     Profession of Information Technology 

m. Other professions notified for the purpose of Section 194J 


Professions notified for the purpose of Section 194J: (vide notification No.88/2008/F. No.275/43/2008-IT(B) dated 21.08.2008) 

Ø  Sports persons 

Ø  Umpires and referees 

Ø  Coaches and trainers 

Ø  Team Physicians and Physiotherapists 

Ø  Event managers 

Ø  Commentators 

Ø  Anchors 

Ø  Sports Columnists 


Technical Services-Areas Covered: 

a.     Rendering of managerial services 

b.     Rendering of Technical Services 

c.     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. 


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.). 


Expense Reimbursement: 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 AOs 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) 


Payment of navigational charges--Where assessee airline was in fact getting technical services apart from using the equipment 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) 


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) 


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. 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 GST component: TDS need not be made on the GST component of the invoice if the same is indicated separately from the professional fees. 


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.