Section 194J: TDS Rate and Tax Deduction Treatment on Fees for professional or technical services

Any sum payable  to a resident in excess of Rupees thirty thousand during a financial year has to compulsorily deduct TDS @ 10% on the entire amount  for the following payments;

(a)  fees for professional services, or

(b)  fees for technical services[or]

(c)  royalty, or

(d)  any sum referred to in clause (va) of section 28

Threshold limit of thirty thousand is applicable on each payment separately.

TDS u/s 194J is also applicable on any remuneration or fees or commission by whatever name called, other than those on which tax is deductible u/s 192, to a director of a company, but on this amount the threshold limit of rupees thirty thousand is not applicable.

S. 194J will not be applicable on Individuals and HUF in the following cases:

• Where the fee for the above expenses are credited or paid exclusively for the personal use of the individual or HUF.
• Where total sales or gross receipts or turnover exceeds rupees 1 crore in case of business and rupees 25 lakhs in case of profession

The updated chart of tax Deduction at Source for FY 2015-16 or AY 2016-17 is as under:

Related Cases:

S. 40(a)(ia), 194J of  IT Act, 1961—Deduction of tax at source—The assessee-company  engaged in the business of stock broking, is a member of the Bombay and National Stock Exchange. As a member, the assessee paid VSAT charges, lease line charges, bolt charges, Demat charges and other charges. Since these charges are not for providing any technical services but for use of infrastructure facilities and, therefore, the provisions of S. 194J are not attracted and thus, no disallowance can be made u/s 40(a)(ia) of the Act—DCIT vs. Angel Broking Ltd. (2010) 3 ITR (Trib) 294 (ITAT-Mum)

S. 194J of the IT Act, 1961—Deduction at source—The petitioner is a Third Party Administrator (TPA) engaged in the business of providing health insurance claim services under various health insurance policies issued by several insurers, who is responsible for making payment to hospital for rendering medical services to policy holders. Therefore, the petitioner is obliged to deduct tax at source u/s 194J of the Act from payments made to hospitals—Medi Assist India TPA (Pvt.) Ltd. vs. DCIT

S. 119(1) & 194J of IT Act, 1961—CBDT Circular—The Board has by the circular no. 8 of 2009, dt. 24th Nov., 2009 taken the view that payment which are made by TPAs to hospital falls within the purview of S. 194J. The vice in the circular that has been issued by the CBDT lies in the determination which has been made by the Board that a failure to deduct tax on payments made by TPAs to hospitals u/s 194J will necessarly attract a penalty u/s 271C of the and it is in violation of the restraints imposed by the provisions of sub-s. (1) of S. 119 of the Act, therefore, to that extent, the said Circular is set aside—Dedicated Health Care Service TPA (India) (Pvt.) (Ltd.) vs. ACIT [2010] 324 ITR 345 (BOM)

S. 119(1) & 194J of IT Act, 1961—CBDT Circular—The Board has by the circular no. 8 of 2009, dt. 24th Nov., 2009 taken the view that payment which are made by TPAs to hospital falls within the purview of S. 194J. The vice in the circular that has been issued by the CBDT lies in the determination which has been made by the Board that a failure to deduct tax on payments made by TPAs to hospitals u/s 194J will necessarly attract a penalty u/s 271C of the and it is in violation of the restraints imposed by the provisions of sub-s. (1) of S. 119 of the Act, therefore, to that extent, the said Circular is set aside—Dedicated Health Care Service TPA (India) (Pvt.) (Ltd.) vs. ACIT

S. 194J of Income Tax Act, 1961—TDS—Whether TDS was deductible by M/s. Bharti Cellular Ltd. when it paid interconnect charges/acesss/port charges to BSNL? While remanding the matter beck to assessing officer the Honorable Supreme Court of India held that:—”We are directing the Assessing Officer (TDS) in each of these cases to examine a technical expert from the side of the Department and to decide the matter within a period of four months. Such expert(s) will be examined (including cross-examined) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to Respondent No.1 to examine its expert and to adduce any other evidence” CIT, Delhi vs. Bharti Cellular Ltd. [2010] 15 ITCD 118 (SC)

S. 194J of  IT Act, 1961—Deduction of tax at source—The assessee-company entered into specific contracts with internet service providers for the installation and maintenance of telecommunication services and made payments to internet service providers for the usage of facilities of broad band, data line, half circuit charges, etc. The Assessing Officer held that the internet charges were paid toward “technical service” and are within the perview of S. 194J and, thus, the assessee is required to be deducted tax at source whereas in appeal, CIT(A) held that the assessee is not liable to deduct tax at source. Matter is remanded to CIT(A) to decide afresh in the light of the specific contract between the assessee and the service provider—ITO vs. Scope International Private Ltd. (2010) 3 ITR (Trib) 214 (ITAT-Chennai)

S. 192, 194J & 201 of IT Act, 1961—TDS—The assessee is engaged in providing and facilitating health care services and engaged the services of resident doctors and full time/part time senior consultant/consultant attending the in-patients. These consultants are paid remuneration for the services provided to the assessee after deducting tax at source as per the provisions of the Act and such remuneration is deducted in the P&L a/c of the assessee as consultation fee paid to the doctors. In respect of each payment, the assessee has a fee for services arrangement with the doctors/consultants whereby chambers in the hotpital premises are provided to the doctors/consultants on rent along with specified secretarial facilities. Since there is no contractual relationship with the service provider and the service recipient between the consultants and the assessee when attending to our patients, therefore,, the hospital cannot be treated as assessee in default for not deducting tax from such payments—ACIT vs. Indraprastha Medical Corpn. Ltd. [2010] 128 TTJ 500 (DELHI)

S. 194J of the IT Act, 1961—Deduction at source—The petitioner is a Third Party Administrator (TPA) engaged in the business of providing health insurance claim services under various health insurance policies issued by several insurers, who is responsible for making payment to hospital for rendering medical services to policy holders. Therefore, the petitioner is obliged to deduct tax at source u/s 194J of the Act from payments made to hospitals—Medi Assist India TPA (Pvt.) Ltd. vs. DCIT [2010] 324 ITR 356 (KARN.)

S. 194J of Income Tax Act, 1961—TDS—Whether TDS was deductible by M/s. Bharti Cellular Ltd. when it paid interconnect charges/access/port charges to BSNL? While remanding the matter beck to assessing officer the Honorable Supreme Court of India held that:—”We are directing the Assessing Officer (TDS) in each of these cases to examine a technical expert from the side of the Department and to decide the matter within a period of four months. Such expert(s) will be examined (including cross-examined) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to Respondent No.1 to examine its expert and to adduce any other evidence” CIT, Delhi vs. Bharti Cellular Ltd. [2010] 15 ITCD 118 (SC)

S. 194J and 40(a)(ia) of Income Tax Act, 1961—Tax Deducted at source—”Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the transaction charges paid by the assessee to the stock exchanges were not fees for technical services and, therefore, the provisions of S. 194J were not attracted and consequently the provisions of S. 40(a) (ia) of the Income Tax Act, 1961 were also not attracted ?” While disposing of the appeal the High Court of Bombay held that:—”We hold that the transaction charges paid by the assessee to the stock exchange constitute ‘fees for technical services’ covered u/s 194J of the Act and, therefore, the assessee was liable to deduct tax at source while crediting the  transaction charges to the account of the stock exchange. However, since both the revenue and the assessee were under the bonafide belief for nearly a decade that tax was not deductible at source on payment of transaction charges, no fault can be found with the assessee in not deducting the tax at source in the assessment year in question and consequently disallowance made by the assessing officer u/s 40(a)(ia) of the Act in respect of the transaction charges cannot be sustained. We make it clear that we have arrived at the above conclusion in the peculiar facts of the present case, where both the revenue and the assessee right from the insertion of S. 194J in the year 1995 till 2005 proceeded on the footing that the assessee is not  liable to deduct tax a source and in fact immediately after the assessment year in question i.e. from AY 2006-07 the assessee has been deducting tax at source while crediting the transaction charges to the account of the stock exchange.” [2011] 20 ITCD 97 (BOMBAY)

S. 194C(1), 194C (2) & 194J of IT Act, 1961—TDS—The art work and photography cannot be treated as professional services and these are covered by the provisions of  S. 194C (1) of the Act. The job awarded by the assessee to other parties in performance of duty as Event manager has to be treated as a contractor and not a sub-contractor and therefore, the provisions of S. 194(1) are applicable—EMC vs. ITO (2010) 134 TTJ 198 (ITAT-Mum)

S. 194J of the IT Act, 1961—TDS—Payment made for interconnect services cannot be treated as payment for technical services cannot be treated as payment for technical services as provided u/s 194J of the Act—Idea Cellular Ltd. vs. DCIT (2009) 121 TTJ 352 (Delhi)

S. 55(2)(ab), 194J of IT Act, 1961—Deduction of tax at source—Lease line charges are not in nature of fees for technical services rendered so as to attract the provisions of S. 194J of the Act—ACIT vs. Omniscient Securities Pvt. Ltd. (2012) 15 ITR (Trib) 82 (ITAT-Mum.)

S. 194J of IT Act, 1961—Deduction of tax at sources—The words in the course of carrying on do not mean that the persons who renders service and is paid, must be a professional. Where a corporate hospital offers services in the course of carrying on medical profession by the doctors who are associated with the hospital as consultants or as employees and such doctors are professionals and income earned by them is professional income but S. 194J is attracted not only when professional fee is paid for services rendered by the recipient, but also when income/fee received by the recipients is towards services rendered in the course of carrying on medical profession. Thus, payments/fee for the services specified should be to a person who is a resident and S. 194 is not confined to payment to the person who is a professional—Vipul Medcrop TPA  (Pvt.) Ltd. vs. Central Board of Direct Taxes

S. 9(1)(vii), 194C & 194J of IT Act, 1961—TDS—Any payment for technical services in order to be covered u/s 194J, should be a consideration for acquiring or using technical know-how simpliciter provided or made available by human element. There should be a direct and live link between payment and receipt/use of technical services/information. If the conditions of S. 194J r/w S. 9(1)(vii), Expln. 2 are not fulfilled, the liability under this section is ruled out. Thus, the payments made by the assessee to security services are covered u/s 194C and there is no scope for applying the provisions of S. 194J of the Act—Glaxo Smith Kline Pharmaceuticals Ltd. vs. ITO (2012) 145 TTJ (UO) 9 (ITAT-Pune)

S. 194J of IT Act, 1961—TDS—The issue arises for consideration in the present case is whether the processing charges which were paid by the assessee to PNB MICR centre for clearing of cheques by using standard facility provided by the PNB MICR centre to all its customer-banks would fall within the definition of “technical service” and the payments made for the same are covered u/s 194J of the Act. However, in the absence of anything on record to discern as to whether an intervention of human elements is involved in the services provided by the PNB MICR Cheque Processing Centre to the assessee-bank, the matter deserves to be remitted to the Assessing Officer to examine afresh—CIT vs. Chief Manager, State Bank of India (2011) 245 CTR 107 (P&H)

S. 194J, r/w S. 9 of IT Act, 1961—TDS—The payments made by the assessee to the MNTL/other companies for the services provided through interconnect/port/access/toll are not liable for tax deduction at source in view of the provisions of S. 194 of the Act—CIT vs. Bharti Cellular Ltd.

S. 9(1)(vii), 194J, 201(1) & 201(1A) of IT Act, 1961—TDS—The assessee company is engaged in the business of providing internet access services to its corporate clients and consumers. For providing the sales service, the assessee needs bandwidth network operating infrastructure and same was availed against the payment. Therefore, availing of such services against payment cannot be said to be technical services within the meaing of S. 194 r/w Expln. 2 to cl. (vii) of S. 9(1) of the Act—Pacific Internet (India)(Pvt.) Ltd. vs. ITO [2009] 125 TTJ 966 (ITAT-Mumbai)

S. 194J, r/w S. 9 of the IT Act, 1961—TDS—The Micr Centre completely falls within the ambit of managerial services under provisions of S. 194J of the IT Act, therefore liable to deduct tax at source—Canara Bank vs. ITO (2009) 117 ITD 207 (ITAT-Ahd)

S. 9(1)(vii), 40(a)(ia) & 194J—Business expenditure—The CBDT in Circular No. 5 of 2005 dt. 15th July has clarified that the provision of S. 40(1)(ia) is to augment compliance of TDS provisions in the case of resident and curb bogus payments to them. Assessee-an electricity company, entered into transmission service agreement” with the transmission company RPVN in terms of the mandate of the Electricity Act, 2003. In any case since assessee has made actual payment of the wheeling/ SLDC charges as per the evidence placed on record, provision of S. 40(a) (ia) are not applicable—Jaipur Vidyut Vitran Nigam Ltd. vs. DCIT (2009) 123 TTJ 888 (ITAT-JP)

S. 9(1)(vii), 194J, 201(1) & 201 (1A) of IT Act, 1961—TDS—As per Explanation to S. 9(1)(vii), the fees for technical services means any consideration for rendering of any managerial, technical or consultancy services and it would not include purchase of material by the assessee for the purpose of imparting computer education at their centre, hence, provisions of S. 194J and for that purpose, S. 201(1) and 201(1A) are not attracted —ACIT vs. Frontline Software Services (Pvt.) Ltd. (2009) 124 TTJ 369 (ITAT-Indore)

S. 194J of the IT Act, 1961—TDS—Payment made for interconnect services cannot be treated as payment for technical services cannot be treated as payment for technical services as provided u/s 194J of the Act—Idea Cellular Ltd. vs. DCIT [2010] 123 ITD 620 (ITAT-Del)

S. 194C, 194J, 040(a)(ia)—Business Expenditure—IT ACT, 1961—NITIN M. PANCHAMIYA vs. ACIT. [2012] 148 TTJ 96 (ITAT-MUMBAI)

S. 194J, r/w S. 194C, of IT Act, 1961—Deduction of tax at source—The transmission and wheeling charges paid by the applicant, a company engaged in business of transmission of electricity to the transmission company, RVPN is fees for technical services and the applicant has the obligation to withhold taxes u/s 194J of the Act on such charges.  SLDC charges are not fees for technical services and not withholding of tax in terms of S. 194J or 194C of the Act is called for on the said charges—Ajmer Vidyut Vitran Nigam Ltd.

Reference:

As Per Section 194J, of the Income Tax Act, 1961-

Fees for professional or technical services.

 (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.

—For the 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 2 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.