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TDS on Fees for Professional or Technical Services, etc. [Section 194J]

'Professional services' mean services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or advertising or any other profession notified under section 44AA or under this section by CBDT.

1.   Who is liable to deduct TDS:

Any person, other than an individual or a HUF. who is responsible for paying to a resident any sum by way of:—

(a)        fees for professional, or

(b)        fees for technical services,

(c)      any remuneration or fee or commission by whatever name called paid to a director, which ix not in the nature of salary,

(d)        royalty, or

(e)     any sum referred to in clause (va) of section 28 which relates to non-compete payment for not carrying out any activity in relation to any business or not sharing any know-how, patents copyrights, trademarks, etc.

shall deduct income tax on income comprised therein.

Individuals and HUF who were covered under section 44AB(a) and (b) in the preceding previous year i.e. are also required to deduct tax at source. [Second proviso to section 194J]

2.   No TDS if Fee for Professional Services is for the Personal Purposes of the individual or HUF:

No individual or Hindu undivided family shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes.

3.   When TDS is to be Deducted:

-           Tax is to be deducted either at the time of actual payment of such fees;  or

-           its credit to the account of the payee

whichever is earlier.

4.   Rate of TDS for financial year 2019-20

10% on such income.

Further, in the case of a payee, engaged only in the business of operation of call centre, the rate of TDS shall also be 2% instead of 10%.

Notes:

1.       No surcharge or health and education cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.

2.         The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.

5.   Where no TDS is to be Deducted at Source:

No tax is to be deducted where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed—

(i)         Rs. 30,000, in the case of fees for professional services referred to above;

(ii)        Rs. 30,000, in the case of fees for technical services referred to above;

(iii)       Rs. 30,000, in the case of royalty referred to above;

(iv)       Rs. 30,000, in the case of non-compete fee referred to above.

There is no threshold limit for deduction of tax at source in case of payment to director covered under section 194J.

6.   Where the TDS is either not to be deducted or to be deducted at Lower Rate [Section 197 Rule 28 and 28AA]

The assessee to whom fees for professional or technical services, etc. is payable may make an application in Form No 13 for obtaining a certificate for deduction of tax at any lower rate or no deduction of tax, as the case may be.

An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, under section 197(1) shall be made in Form No. 13 electronically,—

(i)         under digital signature; or

(ii)        through electronic verification code.

Where such certificate is given, it will be valid for such period of the previous year as may be specified in the certificate and the person responsible for paying such sum, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified in such certificate or deduct no tax, as the case may be.

The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued except in certain cases direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate

However, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No. 13 under that section contains the Permanent Account Number of the applicant.

 

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