Section 194J on Tax Deducted at Source

Section 194J is the Governing Section for deduction of TDS (Tax Deducted at Source) under the Income Tax Act, 1961 applicable in India.

As per this section TDS has to be deducted if payment of Professional Fees during any Financial Year (April 1st to March 31st) by the payer to the payee exceeds Rs.30000/- (Rupees Thirty thousand) this deduction will be @ 10% on the whole of such amount paid during the said Financial Year.

If the payee does not have a Permanent Account Number (PAN) issued by the Government of India, then TDS rate will be 20% instead of 10% on the whole of such amount paid during the said Financial Year.

It may be noted that the Income Tax Act, 1961 prescribes deduction of TDS on payments to Non Residents (NRI) at the maximum marginal rate of 30% on all payments.

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:-

  • Fees for Professional Services
  • Fees for Technical Services
  • Any remuneration or fee or commission by whatever name called paid to a Director, which is not in the nature of salary.
  • Royalty
  • Any sum referred to in clause (via) of section 28 which relates to non complete payment, or shall deduct income tax on income comprised therein.
  • 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 194J(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.

  • No Surcharge, Education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
  • The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.
Q.4. Whether the services rendered by Online News Agencies to Newspapers Company shall attract TDS u/s 194J?

A.4. Payments made by Newspapers Company to Online News Agencies is liable for deduction of tax at source under section 194J

Q.5. Whether Non Resident (NRI) not having PE in India, making payments to CA, Lawyer, Advocate or Solicitor are required to deduct TDS u/s 194J?

A.5. Any fees paid through regular banking channel to any Resident CA, Lawyer, Advocate or Solicitor by a Non Resident (NRI) 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.

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 10% of such remuneration.

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