The following article is an explanation and analysis of the provisions of TDS in relation to professional and technical under Section 194J of the Income Tax Act and its application accordingly.
Professional Services
Activities pursued by the following persons are referred to as Professional services :
Architectural professionals
Legal professionals
Engineering professionals
Accountants
Interior Decorators
Advertisers
Technical Consultants
Film Artists
Company Secretary
Sports persons
Event managers
Commentators
Anchors
Umpires and referees
Coaches and trainers
Physiotherapists
Team physicians
Sports columnists
Technical Services
Services rendered by an individual for consultancy, technical or managerial services, excluding that of assembly, mining, construction, are referred to as Technical services. This is because income from the same would be deemed as salary of the recipient.
Non-compete Fees
the amount paid either in cash or kind, as a return for an agreement which restricts any person from sharing any license, patent, franchise, trademark, know-how, commercial or business rights etc is referred to as Non-comate fees.
Royalty
Royalty as under the above provision can be put as following:
• Transfer of rights in relation to invention, secret formula, model, design, trade mark or patent.
• Use of an invention, model, patent etc.
• any kind of sharing on the basis of usage of an invention, patent, formula etc.
• Using the equipment or the right to use it for industrial, scientific or commercial purposes.
• Transfer of related rights of literary work, scientific findings, films or video tapes from the aim of radio broadcasting without considering it for sale, exhibition or distribution of the same.
Responsibility in Deducting Taxes
Any other person other than an individual or a Hindu Undivided Family, paying the resident sum in terms of the following, is eligible for tax deduction:
• Professional Services.
• Technical Services.
• Any remuneration/fee/commission paid to a director, which is not in the nature of salary.
• Royalty.
• Non-compete fee according to Section 28 (va) of the Income Tax Act.
Individuals and Hindu Undivided family, covered under Section 44AB (Section 44AB deals with tax audit) are supposed to deduct tax at source.
Although any expenses or amount spent for personal purposes are excluded from the purview of TDS.
TDS Rates for Professional & Technical Services
TDS rates are applicable under Section 194J and stand as follows:
• 10% on such income
• 2% if the payee is only engaged in the business of operation of a call centre
Also the additional points to be made in this are that No surcharge, education cess or SHEC are to be added to already mentioned rates. Hence, tax is to be deducted at source at the basic rates. In addition to this wherever PAN isn’t quoted, whatever the case may be, TDS rate will be 20%.
Deposit of TDS by Deductor
A TAN registration is a compulsion for the TDS deductor, and remittance of the TDS deducted should be done as below:
• If the payment is made by on or behalf of the Government, tax must be deposited on the same day without the usage of challan or, on or before seven days from the end of the month in which deduction is made along with the challan.
• If the amount is credited/paid in the month of March, tax must be deposited on or before seven days from the end of the month in which deduction is made along with a challan, or by the 30th of April.
• TDS can also be deposited on a quarterly basis on the approval of the Assessing Officer.
TDS Certificate
Timely and proper issue of TDS certificate should be ensured by all TDS deductors. TDS certificate must be issued within the following dates:
Non-Government Deductor
• the deadline for issuing certificates for the months of April-June would be the 30th of July.
• The deadline for issuing certificates for the months of July-September would be the 30th of October.
• The deadline for issuing certificates for the months of October-December would be the 30th of January.
• The deadline for issuing certificates for the months of January-March would be the 30th of May.
Government Deductor
• the deadline for issuing certificates for the months of April-June would be the 15th Of August.
• The deadline for issuing certificates for the months of July-September would be the 15th of November.
• The deadline for issuing certificates for the months of October-December would be the 15th of February.
• The deadline for issuing certificates for the months of January-March would be the 30th of May.
Cases where TDS under this Provision is not Applicable
Any amount or aggregate amount whose total, paid or credited by an individual or tax payers, doesn’t exceed a sum of Rs.30, 000 in a given financial year, TDS deduction is not applicable. Also no TDS deduction is required to be made for fees paid by a non-resident in exchange of professional and technical services.
Clarifications on TDS on Professional Services
following vital judicial decisions made in the past regarding the applicability of TDS on certain process and technical services clarifies things more:
• Fee paid to Bombay Stock exchange is not liable for deduction of tax at source.
• Subscription charges paid for procuring financial E-magazine is not inclusive of professional services and hence would avoid TDS.
• Payment made for services rendered by television channels in receiving its programs would qualify for TDS.
• Payments to stock exchange for providing infrastructure to its members will not be considered as services of technical nature, and hence wouldn’t attract provisions of Section 194J.
• Purchase of course or any study material is not inclusive of TDS.
• Stunt artists, unlike actors, wouldn’t come under the purview of TDS.
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