Section 194J of the  Income Tax Act of 1961, states that An individual should deduct TDS on professional fees paid by him to a resident exceeding Rs. 30,000/-

Deductor

Deductor of TDS on professional fees is a person (other than individual or HUF who is not liable to audit under section 44AB) who is paying to resident:

  • Fees for Professional Services
  • Fees for Technical Services
  • Non-compete fee
  • Royalty
  • Any remuneration or fees or commission that is paid to the director, other than those which is payable as salary, has also been included in section 194J after amendment in the Financial bill in the year 2012.

Deductee

  • Deductee is the person who is providing any professional services(not being the services exclusively excluded) to another person.He will get his professional fee after the deduction of TDS from it by the Deductor.

Rate of TDS on Professional Fees

  • The rate of TDS on professional fees is 10%
  • The surcharge, Education Cess or SHEC shall not be added to the TDS rate. Therefore, TDS on commission income will be deducted at the source at the rates mentioned above.
  • In case the Permanent Account Number (PAN) has not been quoted by the deductee, then the rate of TDS on commission income will be 20%.

Services as per section 194J

Professional Services

The professional services on which section 194J doesn’t apply includes:

  • Medical;
  • Legal;
  • Engineering;
  • Architectural profession;
  • Technical consultancy;
  • Accountancy profession;
  • Interior decoration;
  • Such other profession as notified by the Board u/s 44AA.

Further, Section 194J includes the services of:

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

Technical Services

Technical Services as per section 194J are:

  • Consultancy services;
  • Technical services;
  • Managerial services.

The services that are not considered as Technical services include the services of:

  • Assembly;
  • Mining;
  • Construction.

Income from these services same would come under the head Salary Income.

Non-Compete Fees

Non-Compete Fees as per section 194J is the amount that is received by a person that binds him from sharing any License, Franchise, Patent, Trademark, Know-how or any Business or Commercial rights, Information or Techniques that may be used elsewhere for manufacturing or Processing.

Royalty

Royalty as per section 194J means:

  • Use of an Invention, Model, Patent, etc.
  • Transfer of rights with respect to an invention, secret formula, model, design, trade mark or a patent.
  • Use or right to use equipment for industrial, scientific or commercial purposes.
  • Sharing any information related to use of an invention, patent, formula, etc.
  • Transfer of rights related to literary work, scientific findings, films or video tapes for the purpose of radio broadcasting, no consideration for sale, exhibition or distribution of the same

Time Limit

Time limit to deposit TDS on professional fees:

In case of Non-Government Assessee

  • Tax for the month of March – 30th April
  • Tax for any other month – 7th Day of the next month

In case of Government Assessee

  • In case the tax has to be deposited without challan – Same Day
  • In case the tax has to be deposited with challan – 7th Day of the next month

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

Exemption

TDS on Professional Fees is not required to be deducted in the following cases:

  • If payment is made by an Individual or Hindu Undivided Family exclusively for personal purposes.
  • If the assessee has applied to the Assessing Officer for no TDS or TDS at a lower rate u/s 197.
  • No tax is required to be deducted where the amount that is paid or payable as the professional fee during the financial year does not exceed Rs. 30,000/-

Penalty

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

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

In case you are confused about TDS Return Filing as a deductor, feel free to consult the experts at LegalRaasta. You can get comprehensive assistance with our TDS Return Filing Software which supports TDS on Salary payments Form24Q, Rent, Interest, Commission and other Non-salary transactions (Form 26Q), NRI (Form 27Q) and TCS Form27EQ.