Section 194J of the Income Tax Act focuses on provisions regarding TDS deduction by a payer while making payments to a resident individual for providing specified technical and professional services. This article contains essential information regarding this Section. Hence, individuals curious to know about it must keep reading!

A person, except Hindu Undivided Family and individuals, paying fees for receiving technical and professional services, is responsible for deducting TDS while making payments. 

Persons here denote the following:

• Local authority
• Central or State Governments
• Corporation
• Cooperative Society
• University 
• Trust
• Registered Society 
• Firm 
• Company

In case of a Hindu Undivided Family or an Individual, section 194J is applicable if following conditions are met:

• If they carry a business where turnover or sales or gross receipts in the previous fiscal year is above ₹ 1 crore.

• If they carry a profession where turnover or sales or gross receipts in the previous fiscal year is above ₹ 50 lakhs.

The type of payments that Section 194J of the Income Tax Act covers are as follows:

• Fees for professional and technical services
• Remuneration, commission, or fees to directors of a company excluding any salary on which TDS under section 192 is deductible. 
• Royalty
• Payments received in kind or cash under section 28(va) for –
  • Not conducting any business activity
  • Not sharing patent, know-how, copyright, licence, trademark or any other commercial right of similar type

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Professional and technical services under Section 194J denotes the following services:

1. Professional Services Under Section 194J Means

• Medical
• Legal
• Architectural
• Engineering
• Technical consultancy services or accountancy
• Advertising
• Interior decoration

Notified Professions by CBDT in relation to sport activities: sports activities like referees, umpires, sportspersons, trainers, coaches, physiotherapists, team physicians, commentators, event managers, sports columnists, anchors.

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Notified Professions that are also covered in section 44AA: authorised representative, film artist or company secretary or information technology

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2. “Fees for Technical Services” Under Section 194J Means

• Technical 
  
• Managerial 
• Consultancy (including technical or other personnel rendering services)

However, “fees for technical services” under Section 194J does not include the following:

• Assembly
  
• Construction
  
• Mining
  
• A project where an individual receiving income as salary

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The time of deduction of TDS shall be earliest of the following times:

• When the payment is due (credit)

  or

• Actual payments in a cheque, draft, cash or other payment modes

There are a few exceptional circumstances when Section 194J is not applicable:

• Hindu Undivided Families and individuals making payments to meet their personal purposes
• A payer pays to non-resident sub-contractor and contractor
• The single or total amount paid in a financial year is not above ₹ 30,000

Individuals not deducting or delaying in deducting TDS from payments can face the following consequences:

1. Interest Till the Payment Date

In case of late TDS payment to the Government, deductors have to pay interests along with TDS. The interest rate is as follows:

• Non-deduction of Tax  - 1% of interest is chargeable every or part of the month. This is levied from the date on which TDS was to be deducted up to the actual date of deduction.

• Non-payment of TDS to the Government - 1.5% of interest is chargeable every or part of the month. This is calculated from the date on which the deductor deducted TDS up to the payment date.

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2. Disallowance on Expenses

In case of business or profession, if the entity doesn’t deduct TDS on those expenses on which it was required to deduct TDS, 30% of such business expenses are disallowed in the year in which such TDS was not deducted or paid within the due date of filing of Income Tax Return. 

Such disallowed expenditure is allowed again the subsequent year as and when the TDS is deducted and paid.  

Knowing about Section 194J of the Income Tax Act will assist taxpayers to deduct and deposit TDS within time to avoid paying additional interests and increase tax liabilities.