TDS U/S 194J FOR TECHNICAL SERVICE (FY 2020-21)

[MAHESH M]

Is there any provision in income tax whereby we could get a certificate from the assessing officer or from TDS department that TDS is to be deducted @ 2% U/s 194J if we give our reasons/explanation that the services rendered by us fall under Technical services for purpose of TDS U/s 194J?

The assessee does maintenance works of mobile/cell towers and falls under Technical service. (called as IME SERVICES) The deductor is insisting for a certificate from IT dept that TDS can be deducted @2% for the payments made to client treating as technical services. If not given they will deduct TDs @ 10%. We wrote a letter to the deductor explaining how the services rendered by us will fall under Technical service and not professional service as per Section 194j and attract 2% TDS, but the deductor is still asking for a certificate from Dept in this regard.

In the earlier years, when the TDS RATE U/S 194j is 10% with out distinction between technical or professional services, we used to apply for lower deduction in Form 13 and get a certificate for TDS @5/6% instead of 10%. Eventhough there is an amendment regarding tds @ 2% for technical services, the deductor is saying it still as 10%. We cannot go for a lower deduction application this year because if tds is deducted @ 2%, there will be tax payable by the assessee. If tds is deducted @ 10%/ 7.5% reduced rate, there will be a huge refund and case is getting selected for scrutiny.

I didn't find any section in income tax for applying to dept regarding this. Can anyone throw some light on any provisions in this regard or any other options available to deductee to get a certificate from dept that TDS HAS TO BE DEDUCTED @ 2% ON TECHNICAL SERVICES PROVIDED BY THE DEDUCTE

[YAGAY andSUN]

The present article features the TDS provisions contained under section 194J of the Income Tax Act, 1961 relating to the TDS deduction on fees for professional or technical services.

Coverage of Section 194J of the Income Tax Act

Categories of the person covered under section 194J

Every person, except an individual or a HUF, making payment to a resident for notified services is covered under section 194J of the Income Tax Act.

However, it should be noted that, if the gross receipts or sales or turnover of the Individual or a HUF exceeds the monetary limit specified under section 44AB (a) or section 44AB (b), then, they would get covered under section 194J. In short, in case of an individual or a HUF, if they are liable to get their accounts audited, they are required to deduct TDS as per provisions of section 194J.

List of notified services

Every person making payment of the following notified services is required to deduct TDS under section 194J of the Income Tax Act, 1961 –

Fees for professional services;

Fees for technical services;

Royalty;

Remuneration / fees / commission paid to director of the company (excluding salary);

Fees paid for not carrying out any activity in relation to any business or profession;

Fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of the same nature.

Understanding the meaning of important terms –

1. Professional Services –

The term ‘Professional Services’ means services rendered by a person carrying on –

Legal;

Medical;

Engineering or architectural profession or accountancy profession;

Technical consultancy or interior decoration or advertising;

or such other profession as notified by Board for the purpose of section 44AA.

2. Fees for technical services –

The meaning of the term ‘Fees for technical services’ is the same as that provided in Explanation 2 to section 9 (1) (vii).

‘Fees for technical services’ means any consideration for the rendering of any managerial, consultancy, or technical services. It includes the provision of services of technical or other personnel. The term ‘Fees for technical services’ doesn’t include consideration for any construction, mining, assembly or like project undertaken by the recipient or consideration chargeable under the head ‘salary’.

3. Royalty –

The meaning of the term ‘Fees for technical services’ is the same as that provided in Explanation 2 to section 9 (1) (vi).

Time of TDS deduction –

The person who is required to deduct TDS under section 194J shall deduct TDS either at the time of credit of sum to the account of the payee or at the time of payment in cash / cheque / draft or any other mode, whichever is earlier.

Rate of TDS deduction –

The Deductor is required to deduct TDS at the following prescribed rates under section 194J of the Income Tax Act, 1961 –

Particulars Rate of TDS

Cases, wherein, the payee is engaged in the business of the operation of Call Centre only (effective from 1st June 2017) 2%

In case of fees for technical services (not being a professional royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic film) (effective from 1st April 2020)2%

Professional royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic film10%

In case of fees for any other professional services10%

In case the payee fails to furnish PAN20%

Threshold Exemption Limit –

TDS is not deductible in case the payment doesn’t exceed the prescribed threshold exemption limit. No TDS is to be deducted if the aggregate amount credited / paid during the financial year doesn’t exceed –

1. INR 30,000 in case of fees for professional services.

2. INR 30,000 in case of fees for technical services.

3. INR 30,000 in case of royalty.

4. INR 30,000 in case of fees paid for not carrying out any activity in relation to any business or profession.

5. INR 30,000 in case of fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of alike nature

It should be noted that the threshold exemption limit is not available only in the case of remuneration / fees / commission paid to director of the company (excluding salary).

Frequently Asked Questions (FAQ) on Section 194J

Q.1 What is section 194J?

Ans: As per provisions of section 194J of the Income Tax Act, 1961 requires every person to deduct TDS @ 10% or 2% depending on case to case basis on the following payment made to a resident person –

Fees for professional services;

Fees for technical services;

Royalty;

Remuneration / fees / commission paid to director of the company (excluding salary);

Fees paid for not carrying out any activity in relation to any business or profession;

Fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of alike nature.

Q.2 How can I claim TDS under section 194J?

Ans: If the TDS is deducted under section 194J and total net income of the year is below the taxable income, then the payee can claim for refund of TDS so deducted under section 194J by the filing of an income tax return.

Q.3 Is TDS applicable on legal charges?

Ans: Yes, TDS is applicable on legal charges if the aggregate amount exceeds INR 30,000 during the financial year.

Q.4 What is the TDS rates for consultancy?

Ans: TDS rates of 10% for consultancy are prescribed under section 194J of the Income Tax Act, 1961.

AI Summary

TDS on technical services: deductible at prescribed reduced rate for fees; timing, threshold, and PAN rules apply. Section 194J requires deduction of tax at source by specified payors on payments for notified services, including fees for professional and technical services, royalty and director remuneration. Deduction must occur at the earlier of credit or payment. The statute differentiates professional services from fees for technical services (managerial, consultancy or technical service consideration, including supply of personnel) and prescribes differing withholding consequences, a threshold exemption for aggregate payments below the specified limit, and higher withholding consequences where PAN is not furnished.