TDS Section 194J: Professional and Technical Services
TDS(Tax Deducted at Source) is a way to collect income tax in advance. One of the key TDS sections in India is Section 194J, which applies to payments made for professional and technical services. Whether you are a business owner, freelancer, or service provider, it’s important to understand how TDS under section 194J works.
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What is Section 194J of the Income Tax Act?
Section 194J of the Income Tax Act deals with TDS on professional and technical services. It states that when a person makes a payment for such services, they must deduct a certain percentage as TDS before making the actual payment. This section helps the government collect taxes early and ensures that service providers report their income properly.
Applicability (Who Needs to Deduct)
TDS under section 194J needs to be deducted by:
- Individuals or businesses that are liable for an audit under income tax laws.
- Companies, firms, or partnership firms making payments for professional or technical services.
If you are paying someone for professional or technical work, and your accounts are audited, you must deduct TDS under this section.
Payments Covered
1. Professional Services
These include services given by:
- Doctors
- Engineers
- Architects
- Chartered Accountants
- Lawyers
- Interior designers
- Film artists, company secretaries, and more
Any fee paid for these services falls under Section 194J.
2.Technical Services
These include services that involve:
- Technical consultancy
- Software services
- Engineering advice
- Data processing
- Scientific or technical support
If the service requires specialised knowledge or skills, it may come under technical services.
TDS Rate and Threshold
Understanding the 194J rate and limit for 194J is crucial:
- TDS Rate:
- 2% for technical services (excluding professional services)
- 10% for professional services
- Threshold Limit:
TDS is only deducted if the payment exceeds ₹30,000 in a financial year. So, if you pay less than ₹30,000 to a professional or technical expert in a year, TDS is not needed.
Payment and Due Dates
When you deduct TDS under section 194J, you must deposit it with the government by:
- 7th of the next monthfor monthly deductions)
- 30th April(for TDS deducted in March)
Paying on time helps you avoid interest and penalties.
Reporting in TDS Returns
Once you deduct and deposit the TDS, it must be reported in TDS returns. This is done quarterly through Form 26Q.
- PAN of the person paid
- Amount paid
- TDS deducted and deposited
…must be correctly reported in the return.
Examples of TDS on Professional and Technical Services
Let’s understand with a few examples:
- You hire a lawyer and pay ₹50,000 as legal fees. You must deduct 10% TDS = ₹5,000 before payment.
- You pay a software consultant ₹1,00,000. Deduct 2% TDS = ₹2,000.
- You pay an architect ₹25,000 in a year. Since it’s below ₹30,000, no TDS is required.
Exceptions and Special Cases
Some exceptions where Section 194J TDS is not applicable:
- If the payment is below the ₹30,000 threshold.
- When individuals or HUFs (not under audit) make payments.
- Payments covered under other TDS sections, like 194C (contract work).
Also, Royalty and non-compete fees may be covered under this section depending on the nature of the payment.
Difference between 194J and 194C
194J vs 194C is a common confusion. Here’s a quick comparison:
| Feature | Section 194J | Section 194C |
|---|---|---|
| Type of Service | Professional or technical services | Contractual work |
| TDS Rate | 2% or 10% | 1% (individual/HUF), 2% (others) |
| Threshold Limit | ₹30,000 | ₹30,000 per contract or ₹1,00,000 annually |
| Example | Doctor, lawyer, IT consultant | Courier service, labor contracts |
| Use 194J when paying professionals; use 194C for contract-based work. | ||
Use 194J when paying professionals; use 194C for contract-based work.
Hi there! I’m a Chartered Accountant with over 20 years of experience in financial accounting and a passion for writing. I enjoy simplifying complex topics like GST and income tax, believing that learning should be a lifelong journey. I'm here to share insights and make financial matters easier for everyone!
Frequently Asked Questions
- What is Section 194J, and who needs to deduct TDS under this section?Section 194J covers TDS on professional and technical services. Businesses and professionals liable for audit must deduct TDS before making payments to service providers.
- What types of payments are covered under Section 194J?Payments for services by doctors, engineers, consultants, chartered accountants, software professionals, and other professionals come under Section 194J.
- What is the TDS rate and threshold under Section 194J?The TDS rate is 10% for professional services and 2% for technical services. No TDS is needed if the payment is below ₹30,000 in a financial year.
- What is the difference between Section 194J and Section 194C?Section 194J is for professional/technical services, while Section 194C is for contract-based work. The TDS rates and rules are different for both.
