Tax deduction at source or TDS is an important concept, which enables taxpayers to pay their share of tax at the source of income itself. It eases the burden of taxpayers at the time of filing a return of income by making sure they can attain credit for taxes deducted at source.
Fees for professional services or technical services are one of the most important or common types of payment made by a business entity. The payment of fees for professional or technical services is covered under section 194J, which was renewed after the passing of the finance bill of 2020, which took effect on April 1st of 2020.
Let us understand a bit more about this section 194J TDS.
The following payments are covered under section 194J of the income tax act
3. Royalty
4. Remuneration paid to directors excluding salaries
5. Payment made like non-compete fees (fees paid not to carry on any business in any specific area or specific period or fees paid as to not pay technical know-how knowledge).
1. The tax has to be deducted in cases where payment for professional or technical fees is greater than Rs.30,000 during the year
Rs.30, 000 is the maximum limit applicable to each type of payment.
E.g. an entity that pays Rs.20, 000 as royalty and Rs.25, 000 as professional fees; in this case the entity is not liable to pay tax as the maximum limit for each item is separate
2. There is no such limit for payment of commission or remuneration to directors in a company. There will be a deduction of tax no matter how big or small the amount.
Payments like professional or technical fees are liable to deduct tax at source, however, the following persons are not eligible to deduct tax
1. An individual or HUF carrying on a business: where the annual turnover in the previous financial year does not exceed Rs. 1 crore.
2. An individual or HUF carrying on the profession: where the annual turnover in the previous financial year does not exceed Rs. 50 lakh.
Other than the following all other payments in the form of professional or technical fees are required to deduct tax at source.
Nature of payments
Rate of tax deduction
Payment of fees for technical fees
2%
Payments made to operators of call centers
2%
Payment of royalty for the sale, distribution or exhibition of cinematographic films
2%
All other payments covered under this section
10%
Payee does not furnish his/her PAN
20%
The deduction of tax at source should be at the time of:-
1. Passing such entry in the books of accounts
2. Making the actual payment of the expense,
Whichever is earlier.
Non-government deductions
Deductions from the office of government
Payment made before the 1st of march
7th day from the end of the month
7th day from the end of the month
Payment made in the month of march
April 30th
Payment of tax is made on the date of payment of professional or technical fees to the payee but the corresponding challan is deposited on the 7th day from the end of march month
Consequences of non-deduction or late deduction of tax
Non-deduction or late deduction of tax has two consequences:-
1. Disallowance of part of expenditure- 30% of the expenditure is disallowed in the year in which the expenditure is claimed (taken to the profit and loss account)- however, the same shall be repaid in the year in which the TDS is paid to the government
2. Levy of interest until the date of payment- in case of delay of payment, interest has to be paid along with TDS. The rate of interest is determined as follows:-
3. No deduction of tax is paid: interest shall be payable/paid at 1% per month or part of the month from the date on which tax is required to be deducted up to the date of actual deduction
4. The tax has been deducted but not been paid: interest shall be payable/paid at 1.5% per month or part of the month from the date on which tax is required to be deducted up to the date of actual deduction.
You can verify your TDS details by collecting Form 16 from deductors or Form 26AS through the TRACES utility or income tax e-filing website.
You can check the details of your TDS by obtaining Form 16 from deductors or by submitting Form 26AS via the income tax e-filing website or the TRACES utility.
No, stipends are not subject to professional taxation. It may fall under 192 in certain situations.
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