FAQs on TDS on Fees For Professional Or Technical Services-Section 194J

Share
Q.1.
Who is liable to deduct TDS u/s 194J?
A.1. Any person, other than
in individual or a HUF, who is responsible for paying to a resident any sum by
way of:-
1.   Fees
for professional services,
2.   Fees
for technical services,
3.   Any
remuneration or fee or commission by whatever name called paid to a director,
which is not in the nature of salary (w.e.f. 1.7.2012)
4.   Royalty,
5.   Any
sum referred to in clause (va) of section 28 which relates to non-complete payment,
or
6.   Shall deduct
income tax on
income comprised therein.
7.  However,
an individual or a Hindu undivided family, whose total sales, gross receipts or
turnover from the business or professional carried on by him exceed the
monetary limits specified under clause (a) or clause(b) of section 44AB during
the financial year immediately preceding the financial year in which such sum
by way of fees for professional services or technical
services is
credited or paid, shall also be liable to deduct income-tax under this section.
[Proviso 2 to section 1 94J(1)].
Q.2. What
is the point of deduction of TDS u/s 194J?
A.2. Tax is to be deducted
either at the time of actual payment of such fees or its credit to the
account of
the payee whichever is earlier.


Q.3.
At what rate tax to be deducted u/s 194J? 
A.3. 10% on such income.
Notes:
1.    No
surcharge, education cess or SHEC shall be added to the above rates. Hence, tax
will be deducted at source at the basic rate.
2.    The
rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee on
or after 1-4-2010.
Q.4.
Under what circumstances there is no need to deduct TDS u/s 194J?
A.4. There is no need to
deduct TDS u/s 1 94J where the amount of such sum or, as the
case may
be, the aggregate of the amounts of such sums credited or paid or likely to be
credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does
not exceed‑
(i)     
Rs. 30,000 in the case of fees for professional services referred to above.
(ii)    
Rs. 30,000 in the case of fees for technical services referred to above.
(iii)    Rs.
30,000 in the case of royalty referred to
above.
(iv)   Rs. 30,000
in the case of non-complete fee referred to above.
Q.5. What
is the meaning of professional Services in reference to S. 194J?
A.5. Explanation (a) to
Section194J provides that ‘Professional Services’ means services rendered by a
person in the course of carrying on legal, medical, engineering or
architectural profession or the profession of accountancy or technical
consultancy or interior decoration or advertising or such other profession as
is notified by the Board for the purposes of section 44AA or of this section.
Q.6. What
is the meaning of Expression “fees for technical services” in reference
to section 1 94J?
A.6. Explanation (b) to
Section1 94J provides that “fees for technical services” shall
have the same meaning as in Explanation 2 to clause (vii) of sub­section (1) of
section 9, which provides “fees fortechnical services” means any consideration (including
any lump sum consideration) for the rendering of any
managerial, technical or consultancy services (including the provision of
services of technical or other personnel) but does not include consideration
for any construction, assembly, mining or like project undertaken by the
recipient or consideration which would be income of the recipient chargeable
under the head “Salaries”.
Q.7. What
is the meaning of “Royalty” in reference to S. 194J?
A.7. Explanation (ba) to
Section194J provides that “royalty” shall have the same meaning as inExplanation
to
clause (vi) of sub-section (1) of section 9, which
provides that “royalty” means consideration (including any lump sum consideration but excluding
any consideration which would be the income of the recipient chargeable under
the head “Capital gains”) for—
(i)    the
transfer of all or any rights (including the granting of a licence) in respect
of a patent, invention, model, design, secret formula or process or trade mark
or similar property ;
(ii)    the
imparting of any information concerning the working of, or the use of, a
patent, invention, model, design, secret formula or process or trade mark or
similar property ;
(iii)    
the use of any patent, invention, model, design, secret formula or process or
trade mark or similar property ;
(iv)    
the imparting of any information concerning technical, industrial, commercial
or scientific knowledge, experience or skill;
(iva) the use or right to use any
industrial, commercial or scientific equipment but not including the amounts
referred to in section 44BB
(v)    the
transfer of all or any rights (including the granting of a licence) in respect
of any copyright, literary, artistic or scientific work including films or
video tapes for use in connection with television or tapes for use in connection
with radio broadcasting, but not including consideration for the sale,
distribution or exhibition of cinematographic films ; or
(vi)    the
rendering of any services in connection with the activities referred to in
sub-clauses (i) to (iv), (iva) and] (v).
To
further clarify meaning of royalty explanation 4, 5 and 6 inserted to Explanation
to clause (vi) of sub-section (1) of section 9, vide Finance
Act, 2012, which are as under:
“Explanation 4.For the removal of doubts,
it is hereby clarified that the transfer of all or any rights in respect of any
right, property or information includes and has always included transfer of all
or any right for use or right to use a computer software (including granting of a license) irrespective of the
medium through which such right is transferred.
Explanation 5.For the removal of doubts,
it is hereby clarified that the royalty includes and has always included
consideration in respect of any right, property or information, whether or not—
(a) the possession or
control of such right, property or information is with the payer;(b) such
right, property or information is used directly by the payer;
(c) the location of such
right, property or information is in India.
Explanation 6.—For the
removal of doubts, it is hereby clarified that the expression “process”
includes and shall be deemed to have always included transmission by satellite
(including up-linking, amplification, conversion for down-linking of any
signal), cable, optic fiber or by any other similar technology, whether or not
such process is secret;”
Q.8.
Whether provisions of S. 194J are applicable to Transaction charges paid
by assessee-stock broker to Stock Exchange?
A.8. Transaction charges paid by assessee-stock
broker to BSE in respect of transactions carried out through BOLT system
constituted fees for technical services under section 194J read
with Explanation 2 to section 9(1)(vii) and, hence, assessee was liable to
deduct tax at source before crediting transaction charges to account of
stock exchange. CIT v.
Kotak Securities Ltd.* [2011] 15 taxmann.com 77 (Bom.)also refer DCIT v
Angel Broking Ltd (20 10)35 SOT 457(Mum).
Q.9.
Whether provisions of S. 194J are applicable to payments made for

rendering services in course of carrying on
medical profession?
A.9. Payment is made to a
recipient for rendering services in course of carrying on medical profession or
other professions as stipulated in section 194J, deduction of tax at source has
to be made and it is immaterial whether recipient is an individual, firm or an
artificial person. Vipul Medcorp TPA (P.) Ltd. v.
Central Board of Direct Taxes [2011] 14 taxmann.com 13 (Delhi)
Q.10.
Whether provisions of S. 194J are applicable to service provided by MTN L/BSN L
for services of interconnect/port/access/toll?
A.1 0. The expression ‘fees
for technical services’ as appearing in section 1 94J would
have reference to only technical service rendered by a human; it would not
include any service provided by machines or robots. Therefore service provided
by MTNL/BSNL for services of interconnect/ port/access/toll would not fall
within the purview of payments as provided for under section 1 94J, so as to be
liable for tax deduction at source. CIT v. Bharti
Cellular Ltd.[2008] 175 TAXMAN 573 (DELHI) 
However, the Apex Court
remitted the matter to the Assessing Officer, directing him to examine the case
with the help of a technical expert to study whether any human intervention is
involved. [CIT v Bharti Cellular Ltd.
& Hutchison Essar Telecome Ltd. (2011) 330 ITR 239 (SC)] see also HFCL
Infotel Ltd. v. ITO [2006] 99 TTJ (Chd.) 440
Q.11.Whether
tax deductible u/s 194J on payments made to person engaged in business of
providing cellular mobile telephone facility?
A.1 1. Payments made to
person engaged in business of providing cellular mobile telephone facility by
subscribers, being firms and companies, are not covered by definition of ‘fees
for technical services’ in section 194J, read with Explanation 2 to section
9(1)(vii) and as such no tax is required to be deducted at source on such
payments by subscribers. Please refer Skycell Communications
Ltd. v. Dy.CIT [2001] 119 TAXMAN 496 (MAD.)
Q.12.Whether
tax deductible u/s 194J on payment made to a stockist appointed for sale
on commission basis?
A.12. Section 194J is not
applicable to a stockist appointed by drug manufacturer for sale of drugs on
commission basis. Please refer Piramal Healthcare
Ltd. v. ACIT(TDS) [2012] 21 taxmann.com 225 (Mum.)
Q.13.
Whether TDS u/s 194J deductible on various services provided during the course
of carrying of Medical profession?
A.13. Maintaining operation
theatre and surgical equipments, RO system, CT scan machine, MRI machine,
medical equipments and providing service of lift sterlisation and anti-termite
treatment in a hospital, would amount to rendering technical and professional
services. Please refer ITO (TDS) v. Accounts Officer, Govt.
Medical College, Jammu*[2012] 22 taxmann.com 149 (Asr.)
Q.14.
Whether the services rendered by news agencies to newspaper Company shall
attract TDS u/s 194J?
A.14. Payments made by newspaper
Company to news agencies is liable for deduction of tax at source under section
1 94J. Please refer ACIT v. Ushodaya
Enterprises (P.) Ltd.* [2012] 23 taxmann.com 258 (Hyd.)
Q.15.  Whether
payments made to hospital for medical services provided by it shall attract TDS
u/s 194J?
A.15. Where ‘assessee-trust acted
as a nodal agency for State of Andhra Pradesh to provide health care coverage
to individuals, payments made to hospitals by assessee for medical services
received by hospitals were liable to TDS u/s 194J’. Please
refer Arogya Sri Health Care Trust v.ITO [2012] 20 taxmann.com 539 (Hyd.) (see
also Medi Assist India TPA (P) Ltd. v DCIT (T DS) (2009) 184 Taxman 359
(Kar)
Q.16. Whether
payment made directly to any actor on account of composite agreement
entered into for financing film project shall attract TDS u/s 1 94J?
A.16.
Contractors/sub-contractors payment to’ and further having regard to fact that
even if assessee had made payment directly to any actor or any person connected
with film making then it was only out of composite agreement entered into for
financing film project, it could not be concluded that payment made directly by
assessee attracted provisions of section 1 94J, Please refer
Entertainment One India Ltd. * v. ITO (TDS) [2010] 126 ITD 491 (MUM.)
Q.17.
Whether non resident not having PE in India, making payments to CA, Lawyer,
advocate or solicitor are required to deduct TDS u/s 194J?
A.17. Any fees paid through
regular banking channel to any Resident – CA, Lawyer, advocate or solicitor by
a Non Resident who do not have any agent of business connection or permanent
establishment in India, may not be subject to the provisions of tax deduction
at source u/s 194J. However Foreign Companies & and accounting firms are
required to sent quarterly statement stating names and address of the person to
whom the payments are made to the Deputy Secretary, Foreign tax Division, CBDT,
Department of Revenue, Ministry of Finance, New Delhi. Please
refer Circular No. 726, dated 18/10/1995.
Q.18.
Whether TDS u/s 194J is also deductible on reimbursements?
A.18. TDS u/s 194C & 194J
refer to any sum paid i.e including reimbursements – applicable only in cases
where bills are raised for the gross amount inclusive of professional fees as
well as reimbursement of actual expenses.Circular No.
715 dated 08/08/1995. Further Circular No. 720 dated 30/8/1995 
provides that the provision
of sec 194 C &194J is not applicable – where bills were raised separately
by the consultants for reimbursements of actual expenses incurred by them. ITO
vs. Dr. Willmar Schwabe India (P) Ltd (2005) 95 TTJ (Del.)53.
Q.19.
Whether charges paid to International Airport Authority of India for navigational
facilities, shall attract TDS u/s 194J?
A.19. Where
assessee-airlines paid charges to International Airport Authority of India for
navigational facilities, such payments attracted section 194J. Singapore
Airlines Ltd. v. ITO [2006] 7 SOT 84 (Chennai)
Q.20. Where
assessee, a non-resident company, set up a liaison office in India in and
appointed consultants – whether tax deductible u/s 192 or 194J?
A.20. Where assessee, a
non-resident company, set up a liaison office in India in and appointed six
persons as consultants pursuant to agreements, as there was no
employer-employee relationship between assessee­company and consultants, case
was governed by section 1 94J and not section 192. Please
refer Dy CIT v. Coastal Power Co. [2006] 9 SOT 89 (Delhi)
Q.21.
At what rate TDS deductible u/s 194J by an advertising agency making payments
for professional services to a film artist?
A.21. Where an advertising
agency makes payments for professional services to a film artist such as an
actor, a Cameraman, a director etc, tax will be deducted at the rate of 5%. Please
refer Circular No. 714, dated 03/08/1995.
Q.22.
Whether the services of a regular electrician on contract basis will fall in
the ambit of technical services to attract the provisions of section 194J
of the Act? In case the services of the electrician are provided by a
contractor, whether the provisions of section 194C or 194J would be applicable?
A.22. The payments made to
an electrician or to a contractor who provides the service of an electrician
will be in the nature of payment made in pursuance of a contract for carrying
out any work. Accordingly, provisions of section 194C will apply in such cases. Please
refer Circular No. 715, dated 08/08/1995.
Q23.
Whether a maintenance contract including supply of spares would be covered
under section 194C or 194J of the Act?
A.23. Routine, normal
maintenance contracts which includes supply of spares will be covered under section
1 94C. However, where technical services are rendered, the provision of section
194J will apply in regard to tax deduction at source. Please
refer Circular No. 715, dated 08/08/1995.
Q.24.
Whether the deduction of tax at source under sections 194C and 194J has to
be made out of the gross amount of the bill including reimbursements or
excluding reimbursement for actual expenses?
A.24. Sections 194C and
194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of
the bill amount for the purpose of tax deduction at source. Please
refer Circular No. 715, dated 08/08/1 995.
Q.25. Whether
TDS u/s 194J deductible on payment made for purchase of course or study
material?
A.25.  NO, Please
refer ACIT v Frontline Software Services (P) Ltd. (2009) 24 DTR 232
(Ind-Trib)
Q.26.
Whether the provision of TDS u/s 194J applicable to payments made for
facilities of bandwidth and internet?
A.26.   Since bandwidth and net
working operating facilities for VSNL/MTNL were standard facilities and were
not in the nature of technical services with the meaning of section 194J the
assessee would not be liable to deduct tax at source under section 1 94J. Please
refer – Pacific Internet(India) (P) Ltd. v. ITO TDS Mumbai (2009) 27 SOT 523
(Mum)]
Extract
of Section 194J of The Income Tax Act
TDS
ON FEES FOR PROFESSIONAL OR TECHNICAL SERVICES
194J. (1) Any person, not being
an individual or a Hindu undivided family, who is responsible for paying to a
resident any sum by way of—
(a)fees for professional
services, or
(b)   fees for
technical services, [or]
[(ba) any
remuneration or fees or commission by whatever name called, other than those on
which tax is deductible under section 192, to a director of a company; or]
[(c) royalty, or
(d) any sum referred to in
clause (va) of section 28,]
shall, at the time of credit
of such sum to the account of the payee or at the time of payment thereof in
cash or by issue of a cheque or draft or by any other mode, whichever is
earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on
income comprised therein :
Provided that no deduction
shall be made under this section—
(A)from any sums as
aforesaid credited or paid before the 1st day of July, 1995; or
(B)  where the amount
of such sum or, as the case may be, the aggregate of the amounts of such sums
credited or paid or likely to be credited or paid during the financial year by
the aforesaid person to the account of, or to, the payee, does not exceed—
(i)  [thirty thousand
rupees], in the case of fees for professional services referred to in clause (a), or
(ii)   [thirty
thousand rupees], in the case of fees for technical services referred to in
[clause (b), or]
(iii)   
[thirty thousand rupees], in the case of royalty referred to in clause (c), or
(iv)       
[thirty thousand rupees], in the case of sum referred to in clause (d) :]
[Provided further that an
individual or a Hindu undivided family, whose total sales, gross receipts or
turnover from the business or profession carried on by him exceed the monetary
limits specified under clause (a) or clause (b) of section 44AB during
the financial year immediately preceding the financial year in which such sum
by way of fees for professional services or technical services is credited or
paid, shall be liable to deduct income-tax under this section :]
[Provided also that no
individual or a Hindu undivided family referred to in the second proviso shall
be liable to deduct income-tax on the sum by way of fees for professional
services in case such sum is credited or paid exclusively for personal purposes
of such individual or any member of Hindu undivided family.]
Explanation—Forthe purposes
of this section,—
(a)“professional services”
means services rendered by a person in the course of carrying on legal, medical,
engineering or architectural profession or the profession of accountancy or
technical consultancy or interior decoration or advertising or such other
profession as is notified by the Board for the purposes of section 44AA or of
this section;
(b)   “fees for
technical services” shall have the same meaning as in Explanation
to
clause (vii) of sub-section (1) of section 9;
[(ba) “royalty” shall have the
same meaning as in Explanation 2 to clause (vi) of sub-section (1) of
section 9;]
(c) where any sum referred to
in sub-section (1) is credited to any account, whether called “suspense
account” or by any other name, in the books  of account of the person
liable to pay such sum, such crediting shall be deemed to be credit of such sum
to the account of the payee and the provisions of this section shall apply
accordingly.
Note
in respect of Amendment brought u/s 194J vide Finance Act 2012 – Section 194J
(1)(ba) – [Newly Inserted w.e.f. 1st July, 2012]
“any
remuneration or fees or commission by whatever name called, other than those on
which tax is deductible under section 192, to a director of a company; or
Notes
to clause:
The existing provisions in
sub-section (1) of the aforesaid section 194J provide that a person, not being
a individual or a HUF, who is responsible for paying to a resident any sum by
way of fees for professional services, fees for technical services royalty or
sums referred to in clause (va) of section 28 shall deduct an amount equal to
10% of such sum as income tax. It is proposed to amend the aforesaid
sub-section (1) to insert a new clause (ba) so as to provide that the person
referred to in sub-section (1) of the aforesaid section who is responsible for
paying to a director of a company any sum by way of any remuneration or fees or
commission, by whatever name called (other than those on which tax is
deductible under section 192), shall deduct an amount equal to 10% in
accordance with the provisions of the aforesaid section.
Memorandum
Enplaning Finance Bill 2012
Under the existing
provisions of the Income-tax Act, a company, being an employer, is required to
deduct tax at the time of payment of salary to its employees including Managing
director/whole time director. However, there is no specific provision for deduction
of tax on the remuneration paid to a director which is not in the nature of
salary.
It is proposed to amend
section 194J to provide that tax is required to be deducted on the remuneration
paid to a director, which is not in the nature of salary, at the rate of 1 0%
of such remuneration.
Brief
of Amendment
The
amendment is proposed to provide for deduction of tax at source @ 10% by a
company in respect of remuneration or fees or commission by whatever  name
called, paid to a director which is not in the nature of salary and it will be
considered as fees for professional or technical services.

RECOMMENDED READ  Filing of Income Tax Return for AY 2015-16 and Advantages & Disadvanteges of ITR AY 2015-16

Leave a Reply

Written by

Optimization WordPress Plugins & Solutions by W3 EDGE
%d bloggers like this: