This guide is applicable for Financial Year 2016-17 and 2017-18.
Any person (other than individual or huf who is not liable to audit under section 44AB who is responsible for paying to a resident
- Fees for professional services
- Fees for technical services
- 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
- Non-Compete fees as referred under section 28(va)
It is to be noted that if professional or technical services is provided by an employee to his employer then such amount is not covered under Section 194J but covered under section 192 i.e TDS on salary.
Rate of TDS
TDS is to be deducted under this section at the rate of 10%. If the recipient of income doesn’t furnish his PAN to deductor then TDS is to be deducted @ 20%. No surcharge, education cess or SHEC shall be added to the mentioned rates. Also, TDS is to be deducted on fees excluding the GST component.
From 1st June 2017 TDS is to be deducted at the rate of 2% where the payee is engaged only in the business of operation of a call centre.
Tax is to be deducted at the time of credit of such income to the account of the payee or at the time of payment whichever is earlier.
TDS not required to be deducted in following cases
- If payment is made by an Individual or HUF exclusively for personal purposes, then tax is not required to be deducted.
- Assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197.
- No tax is required to be deducted where the amount of such sum or the aggregate of the amounts of such sums credited or paid or likely to be paid or credited during the financial year does not exceed
- 30,000 in case of fees for professional services or
- 30,000 in case of fees for technical services or
- 30,000 in case of royalty or
- 30,000 in case of sum referred under section 28(va)
The amounts are calculated for each of the above categories separately.
Professional Services covered under section 194J
Professional services means services which are notified by the board under section 44AA and sports person, coaches and trainers, event manager, anchors, film artists.
These also include
- Accounting Charges
- Advocate/Lawyers/Legal Fees
- Audit Fees
Technical Services covered under section 194J
Technical services mean any consideration for rendering services of managerial, technical ,consultancy nature. 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.
TDS on certain payment to director covered under section 194J
The payment of remuneration to whole time director or managing director will be considered as salary under section 192 and thus liable for TDS under this section.
While payment of sitting fees, fees for attending meetings etc paid to any director (whether whole time director/managing director or any other director) is considered as payment of professional fees under section 194J. TDS is required to be deducted at the rate of 10% and no threshold limit of rs. 30,000 applies to this. Therefore even if the payment is less then Rs. 30,000 TDS is required to be deducted.
Sums referred to in section 28
As per Clause (va) of Section 28 (added by the taxation amendment act w.e.f. 13-07-2006), any amount, whether received or receivable, in cash or in kind shall be taxable under the head PGBP, if such payment is under an agreement for:-
- Not carrying out any activity in relation to any business; or
- Not sharing any know-how, patent, copyright, trademark, license, franchise etc
This payment is also termed as Non-Compete fees in general business terms.
Royalty for the purpose of this section means consideration for:
- Transfer of rights with respect to an invention, secret formula, model, design, trade mark or a patent.
- Use of an invention, model, patent, etc.
- Sharing any information related to use of an invention, patent, formula, etc.
- Use or right to use equipment for industrial, scientific or commercial purposes.
- 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.
TDS deduction is also applicable under Section 194J on certain specific cases, decided by the case laws and circulars of the department:
- Medical services rendered in hospitals.
- Professional fees charged by film artists from advertising agencies.
- Amount given to recruitment agencies and HR consultancy.
- Payment made by companies to share registrars.
TDS on Reimbursement of Expenses
TDS is also to be deducted on the amount of reimbursement of expenses if such amount is mentioned in the same bill in which professional or technical fees is mentioned.
If a separate bill is raised for such expenses than no TDS is required to be deducted on such amount.
Circular no. 715 dated 8th Aug 1995 and ITO Vs. Dr.Willmar Schwabe India (P) Ltd. 
- Actual expenses which are reimbursed cannot be deducted out of bill amount for the purpose of calculation of TDS. If the amount reimbursed is claimed separately then no TDS provisons applicable on such amount.
- TDS on GST component – If the GST amount is indicated separately in the invoice or agreement/contract then the tax shall be deducted on the amount paid/payable without including such GST component. Such circular is issued in respect of service tax, since GST is implemented the concept remains the same. Circular no. 01/2014
- The person deducting tax has to issue a TDS certificate in form 16A to the deductee.
Also Read: Professional Tax