Accounting Charges- TDS attracted or not?
The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself. It helps control evasion to a certain extent by placing the liability on most business entities to deduct tax in respect of certain expenses if they cross the specified threshold limit. One of the most important and common type of payments that a business entity makes is towards professional fees or fees for technical services.
There has been an uncertainty regarding deduction of TDS u/s 194J for payment made in respect to accounting charges. In most of the cases it has been observed that TDS has not been deducted though the payment exceeds the threshold limit specified.
In this article we will discuss whether payment made to accountant will attract TDS or not?
As per section 194J of Income Tax Act, 1961 a person is required to deduct TDS @ 10% on following payments made to resident in excess of Rs. 30,000 during a financial year.
The type of payments covered under this section is as follows:
- Professional fees
- Fees for technical services
- Remuneration paid to directors excluding salary (For e.g., sitting fees to attend board meetings)
- 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.
Now the question arises, what type of payments are considered as professional fees
For the purpose of this section-
Professional Services, implies to the services carried out by an individual in the medical, architectural, legal, medical or engineering profession. Other services include accountancy, interior decoration, advertising, technical consultancy or any other profession that is accepted by the Board under Section 44AA.
Other services that are accepted under Section 44AA are film artists, company secretary and authorized representative.
Sports persons, event managers, commentators, anchors, umpires and referees, coaches and trainers, physiotherapists, team physicians and sports columnists also come under it.
From the above explanation, it can be concluded that TDS u/s 194J will be attracted in case of accounting charges if the payment exceeds the specified limit of Rs 30,000 in a financial year, because as per s3ection 44AA professional fees includes accountancy. It has been no where classified whether accountancy referred above is with respect to Chartered Accountant profession. Therefore payment made to accountant for accounting charges can be considered as professional fees.
However, It is to be further noted, if payment for accounting charges is made to an employee i.e. on salary basis, then an employer is required to deduct TDS from the salary payable to the employee U/s 192 if the salary exceeds basic exemption limit.
In the judgment of Nikhil Chandra Mitra V/S CIT(A)-15 Kolkata, the Income Tax Appellate Tribunal (ITAT) Kolkata bench has held that the payment of accounting charges or fee to a person who is not a qualified professional cannot be made subject to tax deduction at source under section 194J of the Income Tax Act.
A clarification from government regarding the subject will ease proper deduction of taxes.