Fees for professional/technical services [sec. 194J:- Any person who is responsible for paying to a resident any sum by way of (i)fees for technical services or (ii)fees for professional services (iii)royalty (iv) any non-complete fees, he is required to deduct tax at source, provided such fees paid or credited to the account of payee exceeds Rs 20,000.
Normally an individual or HUF is not required to deduct tax at source. However, an individual or an HUF ,engaged in business or profession, should also deduct at source from such fees paid or credited to the account of the, provided the gross receipts or turnover from such business or profession during the financial year immediately preceding the financial year in which such fees is paid or credited to the account to the payee, exceed Rs 40lakh in case of business and Rs. 10 lakh in case of profession .However, TDS is to be made by an individual or an HUF in cases where such fees is paid by an individual or an HUF incases where such fees is paid for personal purposes.
Terms Explained: professional services means services rendered by a person in the course of caring on legal, medical, engineering, or architectural profession or accountancy or technical consultancy or interior decoration or advertising or any other profession as may be notified by the CBDT.
“Fees for technical services” means any consideration (including any lump sum consideration) for rendering of any managerial, technical or any consultancy services, but does not include any consideration (for such service) which is taxable under the head “Salaries”.
Where technical services are provided under maintenance contracts, provision of Sec.194J will apply in regard to tax deduction at source.
Condition for TDS
The following conditions should be satisfied before any deduction of tax is made:
- the payee is resident in India (under sec.6)
- the fees is paid to the account of the payee on or after 1july 1995
- the fees paid to the account of the payee during the financial year exceeds Rs. 20,000.Thus where it is up to Rs. 20,000no tax is deducted. Where it exceeds Rs. 20,000, tax is deducted on the whole amount of such fees.
Scope of TDS
Payment to artist: when an advertising agency makes payment for professional services to a film artiste such as an actor, a director a cameraman and so on, tax is deducted at the rate of 5%
Payment to a share registrar: Payment by a company to a share registrar will also be similarly be liable to tax deduction at source under Sec. 194JC
Commission Payment for Procuring orders: In respect of payment of commission to external parties for procuring orders for the company’s products, rendering of such services is not covered under Sec.194C, but may involve payment of fees for professional or technical services, in which case tax may be deductible under Sec. 194J
Commission Received by the Advertising Agency from the Media: This would require deduction of tax at source under Sec. 194J
T technical Services under Maintenance Contract: Payment made to a hospital for rendering medical services will attract deduction of tax at source under Sec. 194C.
Routine/normal maintenance contracts which include supply of shares will be covered under Sec. 194C.
Routine/normal maintenance contracts which include supply of shares will be covered under Sec. 194C.
However, where technical services are rendered, the provisions of Sec. 194J will apply in regard to tax deduction at source.
Reimbursement of Expenses. Since Sec. 194J refers to ‘any sum paid’, reimbursement of actual expenses cannot be deducted out of the bill amount for the purposes of tax deduction at source [circular No. 715 dated 8 August 1995].
Fees paid by Foreign Companies through Regular Banking Channels not liable to TDS. In respect of fees for professional services received from foreign companies or foreign law and accountancy firms, any fees paid through regular banking channels to any chartered accountant, advocate or solicitor who is resident in India, by non- residents who do not have any agent or business connection or permanent establishment in India may not be subjected to deduction of tax at source under Sec. 194J. However, foreign companies or foreign law and accountancy firms are required too send a quarterly statement, indicting the name and address of the persons to whom the payments are made, to the CBDT [Circular No. 726 Dated 18 October 1995].
Telephone Services are not covered: when a person decides to subscribe to a cellular telephone services in order to have the facility of being able to communicate with have others, he does not contract to receive a technical service. What he does agree is to pay for the use of the airtime for which he pays a charge. The facts that the telephone service not provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber does not , on that score , make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange or the location of the base station. All that he wants is the facility of using the telephone when he wishes so and being able to get connected to the person at the number to which he desires to be connected. What he applies to cellular mobile telephone is also applicable to fixed telephone service. Neither services can be regarded as ‘technical services’ for the purpose of Sec. 194J of the act [Sky cell Communication Ltd. v. Dy. CIT [2001]25 ITR 53(Mad)].
Timings of TDS [Sec. 197]: the tax should be deducted either at the time of credit of such fees to the account of the tax payee or at the time of payment thereof, whichever is earlier .Payment of fees may be in cash or by issue of cheque or draft or by any other mode. Similarly, where any fees are credited to the account of the payee in any account whether called suspense account or by any other name, provision of tax deduction at source would apply.
Rate of TDS
Payment Timings
- Payment made prior to 1 June 2007
- Payment made on or after 1 June 2007
Income tax so deducted is increased by the amount of surcharge and Education Cess and Higher Secondary Education Cess to be charged in the relevant assessment year.
In the case of any individual, HUF, BOI or AOP, no surcharge is payable at the rate of 10% on income tax, provided the amount payable ecceeds Rs. 10 lakh. However, no surcharge is payable where the payee is a cooperative society or local authority but it is payable in case of firm and domestic company @ 10%, provided such income exceeds Rs. 1 crore.
Education Cess and Secondary Higher education cess is payable @2% and 1% respectively, on the aggregate amount of income and surcharge
