What is Section 194J of the Income Tax Act?

Section 194J of the Income Tax Act is applicable to any person other that an individual or Hindu Undivided Family (HUF) who makes payments to a resident for availing various professional or technical services. However, HUF and individuals are required to make TDS deduction u/s 194J, if they are liable for audit u/s 44AB of the Income Tax Act.

So, some examples of persons who are covered by Section 194J include Trust, Co-operative society, corporation, company, local authority, central/state government, association of persons, body of individuals, etc.

Section 194J applies when making the following payments of over ₹30,000 in a financial year:

• A sum is paid as a business fee for technical assistance.
• Payment is made as a premium for professional charges.
• Non-compete charges
• Royalty

The main purpose of 194J is to implement TDS on payment of specific professional and technical fees.

Here are some of the benefits under section 194J of the Income Tax Act:

• It reduces the time between tax paid to the government and the income received from the source.
• Curbs tax evasion and ensures correct tax liability calculation at correct TDS rates
• Reduces the burden of tax collecting agencies.
• The concept of ‘paying tax as you earn’ minimizes the liability and burden for taxpayers.

The following categories of payments fall under the purview of 194J TDS:

Professional Services: It covers services provided by professionals in the field of architecture, medicine, and engineering. Other professionals from the field of accounting, technical consultation, interior decoration, and other occupations, as listed under Section 44AA, are also in the purview of 194J.

Athletes, event managers, hosts, sports presenters, athlete trainers, sports columnists, team doctors, and others are also liable to pay TDS on professional fees as well.

Technical Services: These are the services offered to clients in the field of consulting, technical assistance, or management. However, technical services for work in mines, building structures, or assembling products is not liable for TDS under Section 194J of the Income Tax Act.

Non-Compete Fees: It’s a monetary and/or non-monetary compensation that an individual receives as part of an agreement for not disclosing a patent, process, license, know-how, copyright laws, and others that someone may use for manufacturing, handling, or another such service. In such cases, TDS deduction u/s 194J is applicable.

Royalty Fees: Royalty payments are also subject to 194J TDS. Royalty payments in this case refers to the following types of payments.

• Transferring the legal ownership of a patent, invention, model, copyright, and others.
• Using a patent, prototype, model, and others.
• Disclosing information about a patent, discovery, formula, and others.
• Authority to use facilities for educational, business, or industrial reasons.
• Transfer rights regarding literature, scientific results, video records, or dissemination of radio transmission.

Section 194J’s limit for tax deduction is ₹30,000 in a financial year and is calculated individually for categories across TDS on professional fees, service fees, non-competence fees, and royalties. Amounts beyond this limit in a financial year are subject to income tax as per specified rates as mentioned in the section. These tax rates u/s 194J are not the same as the income tax slab rates for the applicable financial year.

*Additional health and education cess of 4% is levied on taxable income as per senior citizen income tax limit.

The following rates apply when deductions happen as part of 194J TDS:

There are some exceptions under which TDS on professional fees or services charges doesn’t apply:

• Individuals and HUFs (not liable for audit u/s 44AB) making payments for technical/professional services.
• When the payee makes payment to the non-resident sub-contractor and contractor.
• The total amount paid is under ₹30,000 in a financial year.

The payees who are not deducting or late deducting the 194J TDS may face the following consequences:

Interest Till Payment: Defaulters will be levied a fine based on a fixed rate of interest.

• In case TDS on professional charges is not deducted, then 1% per month penal interest is chargeable on the payable amount till the actual payment date.
• In case TDS is not paid to the government, then 1.5% penal interest is charged on the payable amount till the payment date.

Taxpayers can expect better transparency and ease regarding TDS on professional charges and technical fees under Section 194J. Additionally, the tax deduction under the section can be reconciled with the help of Form 26AS. In case extra TDS is paid in excess to your actuall tax liability u/s 194J, you may be eligible for a TDS refund.

2. Tax exemption up to Rs 5 lakh for super senior citizens under the old system, whereas this limit has been 2.5 lakh under new tax regime for income tax for senior citizens

3. Standard deduction for senior citizens is Rs 50,000 is applicable for all