What is Section 194J?
Section 194J under the Income Tax Act, 1961 mandates Tax Deducted at Source (TDS) on payments made for professional and technical services to resident individuals or entities. This section requires the payer, excluding individuals and Hindu Undivided Families (HUFs) except under certain turnover conditions, to deduct TDS when paying fees for specific types of services.
Applicability and Scope
- Applies to payments made for professional services such as those provided by doctors, lawyers, architects, chartered accountants, and other notified professions under Section 44AA.
- Covers technical services which require specialized technical knowledge or expertise, including engineering, managerial, consultancy, and IT services.
- Also includes payments for royalties, non-compete fees, directors’ fees (other than salary), and service fees to event managers, coaches, physiotherapists, and sports professionals.
- Individuals/HUFs who had turnover exceeding Rs.1 crore (business) or Rs.50 lakh (profession) in the previous financial year must also deduct TDS under this section.
TDS Rates and Threshold
- The TDS rate is generally 10% on professional and like services.
- For technical services and certain specialized services, TDS is deducted at 2%.
- If the payee fails to furnish a Permanent Account Number (PAN), TDS applies at 20%.
- The threshold limit for deduction of TDS was increased to Rs. 50,000 from Rs. 30,000 effective April 1, 2025. TDS is applicable only if the annual payment exceeds this limit; below this, no deduction is required except for director’s fees.
Key Points to Remember
- The obligation to deduct TDS lies with the payer, who must deposit the deducted tax with the government timely.
- Payments to non-residents for technical services fall under Section 195 and are subject to different rates.
- Section 194J excludes individuals and HUFs from deducting TDS unless their turnover/profit crosses specified limits.
- From October 2024 onwards, payments under Section 194J are explicitly not to be confused with “work” under Section 194C for tax deduction purposes.
Consequences of Non-Compliance
- Failure to deduct or deposit TDS under Section 194J may result in penalties, interest on delayed payments, and disallowance of expenditure for the payer.
- The payee can claim credit for TDS deducted while filing income tax returns.
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FAQs
Who is required to deduct TDS under Section 194J?
Any person or entity (except individuals and HUFs under turnover limits) making payments for professional or technical services to a resident must deduct TDS.
What is the current threshold for TDS deduction under Section 194J?
The threshold limit as of April 1, 2025, is Rs. 50,000 per financial year; TDS applies only if payments exceed this limit.
What if the payee does not provide a PAN?
TDS will be deducted at 20% instead of the usual rates if the payee fails to furnish a PAN.
Are individuals required to deduct TDS under Section 194J?
Generally no, unless their turnover exceeds specified limits (Rs.1 crore for business or Rs.50 lakh for profession) in the previous year.
What types of fees are covered under Section 194J?
Professional fees, technical service fees, royalty, non-compete fees, and directors’ fees excluding salary are covered.
