SECTION 194J – FEES FOR PROFESSIONAL OR
TECHNICAL SERVICES
Types of payments covered
The type of payments covered under this section are as follows:
1. Professional fees
2. Fees for technical services
3. Remuneration paid to directors excluding salary (For e.g., sitting fees to attend
board meetings)
4. Royalty
5. Payments in the nature of non-compete fees (i.e., fees paid to not carry on any
business or profession for a specified time and within certain geographical
boundaries) or fees paid to not share any technical knowledge or know-how.
Threshold limit for deducting tax
Tax has to be deducted in case the payment is greater than Rs. 30,000 during the
year. However, there is no such limit for payments made to a director. The tax will
have to be deducted no matter how small the amount.
Persons liable to deduct tax
Every person, who is making a payment in the nature of fees for professional or
technical services is liable to deduct tax at source with the following exceptions:
1. In case of an individual or HUF carrying on business: Where his turnover does
not exceed Rs. 1 crore during the previous financial year.
2. In case of an individual or HUF carrying on profession: Where his turnover
does not exceed Rs. 50 lakh during the previous financial year.
To put it simply, all entities (other than individuals/HUF who are not required to do
tax audit in the preceding year) need to deduct tax.
Rate of deduction of tax
Any payment covered under this section shall be subject to TDS at the rate of 10%.
However, w.e.f. 01.04.2017, the tax on payments made to operators of call centres
shall be deducted at a reduced rate of 2%.
In case the payee does not furnish his PAN then the rate of deduction would
be 20%.
Time of deduction
The tax should be deducted at the time of passing such entry in the accounts or
making the actual payment of the expense, whichever earlier.
Consequences of non-deduction or late deduction
Not deducting the tax or late deduction of the tax has a two-fold consequence:
1. Disallowance of a part of the expenditure: 30% of the expenditure shall be
disallowed in the year in which the expenditure is claimed (taken to the profit and
loss account) – however, the 30% disallowed shall be re-allowed in the year in which
the TDS is paid to the government.
2. Levy of interest until date of payment: In case there is a delay in the payment
of tax, interest has to be paid along with the TDS to the Government. The rate of
interest is determined in the following manner:
a. Where no deduction of tax has been made: Interest shall be payable at 1%per
month/part of month from the date on which such tax was required to be deducted
up to the date of actual deduction.
b. Where tax has been deducted but not paid to the government: Interest shall
be payable at 1.5% per month/part of month from the date on which such tax was
deducted up to the date of payment to the government.
Time limit for payment of tax
Non – Government deductor
Payment made before 1st March – 7th day from the end of the month
Payment made in the month of March – April 30 th
Government deductor
Payment made before 1st March – 7th day from the end of the month
Payment made in the month of March – Payment of tax is made on the date of
payment to the payee but the corresponding challan is deposited by the 7th day from
the end of the month
