Explanation (b) of Article 194J provides that the term “charges for technical services” has the same meaning as in Note 2 to Article 9(1)(vii). For the purposes of explanation 2 of Article 9(i)(vii), the term “technical service fee” means any consideration (including a lump sum) for the supply of any of the following services: The tax must be deducted if the payment is more than Rs 30,000 during the year. However, there is no such cap on payments to a director. Tax must be deducted regardless of the amount of tax. Mr. Roy received Rs 25,000 for technical services and Rs 15,000 for professional services. The total payment made to him is Rs 40,000, which exceeds the tax limit of Rs 30,000. However, there will be no withholding tax as any payment made to him will not exceed the limit of Rs 30,000. The withholding tax, or TDS, has greatly simplified tax collection. In a business, most fees are paid for professional or technical services. These payments are made to residents referred to in section 194J of income tax.
(v) Non-compete obligations under Article 28(VA) will levy a withholding tax in the amount of This payment is also commonly referred to as the non-compete obligation. The rules and regulations of the Government of India also stipulate that individuals must have their financial accounts audited if their sales, gross receipts or annual turnover exceed the monetary limits set out in sections 44AB(a) and 44AB(b) of the Indian Income Tax Act. (i) A Hindu natural person or undivided family is not taxable. A natural person or HUF whose total turnover, gross receipts or turnover of the enterprise or profession reported by him exceeds ” 1 crore in the case of an enterprise or ” 50 lakes in the case of a profession in the financial year immediately preceding the financial year in which the fees for professional services or fees for technical services are credited or paid, is, however, required to deduct the tax on these costs. The following time limit shall apply to the filing of a TDS under this section: (i) thirty thousand rupees in the case of professional service fees under paragraph (a), or Although the appraiser provided audit fees and claimed the same deduction, he argued that the provisions of section 194J would not apply to audit fees, Given that the question of payment to the auditor would only arise after the signing of the financial statements, which took place after the end of the year. Payments relating to non-compete obligations also fall within the scope of section 194J of the Income Tax Act. A non-compete obligation is an amount paid under an agreement to another natural or legal person that prevents the other person/organization from competing in a similar sector or profession. In addition, a Hindu individual or undivided family is not required to deduct income tax on the amount payable as a professional service fee if that amount is credited or paid solely for personal use.
(a) 2 % in the case of royalties for technical services (other than professionals) or royalties in the form of consideration for the sale, distribution or exhibition of cinematographic works; and Since the limit was not exceeded for the first time, no TDS should be deducted at Rs 10,000. However, the transaction amount exceeds the threshold of Rs 30,000 (for professional services) while the payment is made for the second time. Therefore, TDS is deducted with a total of Rs. 60,000 at the rate of 10%. (b) “technical service charge” has the same meaning as in paragraph (1)(vii) of section 9; Under section 194J of the Income Tax Act, withholding tax (TDS) is deducted from fees paid for professional or technical services. TDS is also deducted for the payment of royalties and commissions/remuneration to directors under Section 194J. We hope that this article, which explains the concepts related to TDS on professional fees, informs you well. However, we understand that legal issues like this can be quite confusing. Vakilsearch is a technology-driven platform that offers services that cover the legal needs of businesses, from small startups to large corporations. Our mission is to provide individuals and businesses with fast services for all legal and professional needs. For a business, paying for professional or technical services is one of the most common and important payment methods. Examples of professional fees include legal fees, medical expenses, engineering fees, architectural fees, auditors` fees, interior design fees, and advertising fees.
The provision of managerial, technical or advisory services would be considered an example of technical services. These payments to residents are governed by Article 194J (194JA/194JB). Example: XYZ Company paid Mr. Red ₹25,000 in technical services and ₹20,000 in fees to Mr. Red. Here, XYZ Company is not required to deduct TDS from payments to Mr. Red, as the ₹30,000 limit for each item is separate, namely fees for technical services and fees. Answer: Under Article 194J(1)(ba), all fees, commissions or remuneration paid to a director of a company are liable for TDS not listed in Article 192. If a hospital hired medical consultants and provided them with secretarial rooms, and the fees were collected from outpatients and paid to consultants daily after deduction of a certain amount for rent and secretarial assistance, this was not the payment of fees, and neither Article 192 nor Article 194J were used, And the hospital could not be treated as a defaulting expert, because it did not deduct tax from these payments. Since the limit was not exceeded for the first time, no TDS should be deducted at Rs 10,000. However, the value of the transaction exceeds the threshold of Rs 30,000 while a second payment (for professional services) is made. As a result, TDS is deducted from the entire sum of Rs 60,000 at a rate of 10%.
Note – It should be noted that individuals and HUFs are not required to deduct Section 194J withholding tax on royalties and non-compete registrations, even if the previous year`s turnover exceeds Rs. 1 crore in case of business or income exceeds Rs. 50 lakes in case of profession. The taxable company deducted tax u/s 194J from the payments made to it and treated the payments as royalties. However, in view of the existing legal situation according to the above-mentioned decisions of the Supreme Court, professional services, which are also provided by a natural and legal person, are included in the definition of the FPS. This article will give you all the details – when TDS is to be deducted under section 194J, TDS rate, TDS limit, due date, how to reduce TDS, and how to file a tax return (ITR). Read on! XYZ Co., a partnership, sought advice from an engineer in Sydney. The company paid the engineer a fee of ₹80,000. Should the company deduct the section 194J withholding tax from the engineer`s fees? deduct an amount equal to 81 [two per cent] of that amount in the case of fees for technical services (other than professional) at the time the amount is credited to the recipient`s account or when it is cashed in cash or by drawing a cheque or bill of exchange or otherwise, whichever is earlier; or royalties where such royalties are in the nature of consideration for the sale, distribution or exhibition of cinematographic works and, in other cases, ten%. of that amount] as income tax on the income contained therein: Any person who makes a payment in the form of fees for professional or technical services is liable to withholding tax, with the following exceptions: TDS stands for “Tax Deducted at Source” and falls under section 194J of the Income Tax Act 1961.
This is essentially a deduction required when a person pays a fee to a resident for certain services. This deduction must be made under certain conditions and for certain benefits, which we will explain in more detail in this article. Read on to learn more about TDS on critical fees and regulations. The limits of tax deductions under section 194J are as follows: Fees, often referred to as technical service fees, are one of the largest and most typical types of payments made by a business. Professional fees include those paid to a lawyer, doctor, engineer, architect, accountant, interior designer and others. Technology services include, for example, management, technical and consulting services. Payments to residents fall under section 194J. A maximum of ₹30,000 applies to each item or payment separately.
This section also applies to commissions or remuneration or fees paid to the director of a corporation, even if that amount is not part of the salary.