Section 194J of the Income Tax Act, 1961 mandates the deduction of Tax Deducted at Source (TDS) on payments made for professional or technical services. This provision applies to individuals, Hindu Undivided Families (HUFs), or companies paying for specific services, including professional and technical assistance, royalties, and non-compete fees. Here’s a detailed overview of Section 194J, covering its applicability, updated TDS rates, eligible payment types, and other critical information.
As per Section 194J, individuals, HUFs, and companies must deduct TDS on specific payments exceeding ₹30,000 in a fiscal year. This requirement applies if:
Exemptions: Payments to employees under employment contracts, and transactions with HUFs, are not subject to Section 194J deductions.
You may also want to know Section 80E
Following recent amendments, TDS rates under Section 194J differ based on the nature of services rendered:
These changes are designed to reduce compliance costs and streamline the TDS framework across various professional services.
The following entities are required to deduct TDS on applicable payments:
TDS is deducted at the time of payment or credit, whichever is earlier.
You may also want to know Section 194A
Failure to deduct or deposit TDS on time can lead to penalties and interest charges:
Taxpayers must file TDS using Form 26Q. They are required to submit the deducted amount to the Income Tax Department by the 7th day of the following month. The TDS return should include details such as the deductee’s PAN, the amount paid, and the nature of the payment.
To ensure accurate deductions and avoid penalties, entities must retain:
If a company pays ₹50,000 to a consultant for professional services, they must deduct TDS at 10% (₹5,000). For payments related to technical services, the TDS rate would be 2%.
Proper compliance with Section 194J enables taxpayers to claim eligible expenses, reduces the risk of penalties, and promotes transparency. Moreover, maintaining a compliant TDS history improves the taxpayer’s reputation with financial institutions, potentially aiding in future funding requirements.
Section 194J serves a vital role in ensuring transparency in professional and technical service transactions. It establishes clear requirements for deducting TDS on specific payments and helps streamline revenue tracking for tax purposes. Entities can achieve compliance by understanding the applicable rates, timely filing, and maintaining proper documentation. By adhering to Section 194J, taxpayers can effectively avoid penalties and contribute to a compliant tax ecosystem.
The TDS rate is 2% for technical services, effective from April 1, 2020.
Yes, a 20% TDS rate applies if the payee fails to furnish a PAN.
Yes, payments to employees or HUFs are exempt from TDS deductions under Section 194J.
Non-compliance can lead to a disallowance of 30% of the expense and interest penalties ranging from 1% to 1.5% per month.
TDS must be deducted if the annual payment exceeds ₹30,000.
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Date: 21-22 March 2025
Venue: SIECC Convention Centre, Surat
