TDS under 194J or 194C for Payroll Management & Professional Services

[Guest]

Hello,

A company 'A' (Supplier of Services) has entered upon a Fixed Cost plus Fee contract with another company 'B' (Recipient of Services) to provide Recruitment and Management of Payroll Services on behalf of Company B.

The contract lays down terms that the company A shall provide services of Hiring and Managing a Payroll of around 100 'Professionals' which shall directly report to company B for their services.

The pay-rolled professionals shall be issued contracts by company A and shall for all financial purposes interact with Company A only, whereas, for all technical purposes the professionals shall report to company B.

Company B takes part in the process of recruitment and finalisation of the Professionals and further, in case the professionals do not provide required performances then they are dis-engaged based on recommendation by Company B.

Company B shall make fixed payments without any margin to Company A for further payments of the same to the professionals based on their presence, reporting and travel claims at the end of each month.

Further, company B shall make payment on a fixed % of the total Payroll Value at the end of each month for managing the Payroll of such Professionals. The Company B intends to deduct TDS on the whole value of Contract (i.e. reimbursements of costs + management fees) under section 194J considering that the full value of the contract falls under Technical and Professional Services provided by Company A to Company B.

Whereas, the company A is of the point that the services to the extent of Costs of Payroll and Travel Claims Reimbursed to professionals does not hold any margin, mark-up, or profit and are in nature of cost reimbursements only, therefore shall not attract TDS.

However, the payment of the fixed % of Management Fee separately paid each month is the portion which should be covered under section 194J and 10% TDS can be deducted.

At the least case company A proposes to consider the payments of payroll reimbursements which are finally paid to professionals can be considered under section 192C considering the value of payroll as Manpower Supply Service.

Here, we are requesting experts to provide their view point on above topic giving reference to any established case law/legal reference whereby the appropriate applicable provision can be established.

[Ganeshan Kalyani]

In my view, tds is deductible under 94C. Reimbursement bill should be separate.

AI Summary

TDS classification for payroll services determines whether reimbursements are excluded and the management fee is taxable. Company A provides recruitment and payroll management while Company B reimburses payroll costs and pays a separate management fee. The key question is whether TDS applies to the full contract (treated as technical/professional services) or only to the management fee with payroll reimbursements as non taxable cost recoveries. The adviser advised that TDS is deductible under 94C and that reimbursement bills should be separate.