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TDS: All you need to know about Section 194J

[ecis2016.org] In this article, we will explain about the tax deduction at source and the provision under Section 194JB of the Income Tax Act.

The tax deduction at source (TDS) is a special method of income tax collection that targets the source of income. This process, under Section 194J, helps to ease the taxpayer’s burden by removing the necessity to file for Income Tax Return or ITR every time. This process also allows them to take credit for the taxes deducted when filing income tax returns.

What is Section 194J according to the Income Tax Act?

Section 194J under income tax marks the provisions of TDS which are related to tax collection. People of the country are liable to pay taxes if they are paying fees to any resident person for these specified services.

Services covered under Section 194J

The various services qualifying for TDS deduction under Section 194J are professional and technical services, remuneration paid to directors of a company (not including salary), royalty, and non-compete fees.

What is 194JB?

Section 194JB of the Income Tax Act includes the provision for the deduction of tax for expenses incurred of a professional or technical nature.

194J: Types of payments covered

  • Professional fees under services like legal, architectural, medical, etc.
  • Fees for technical services, including all managerial and consultancy work
  • Service imparted by directors
  • Royalty
  • Payments like non-compete fees

Who deducts tax?

Every working person in the country is liable to pay taxes on the payment and fees for professional or technical services, which are deducted tax at the source. However, in some cases, TDS is not liable to make any deductions:

  • In case an enterprise or business does not have a turnover exceeding Rs 1 crore as calculated in the last year.
  • An enterprise or individual worker who does not have a turnover over Rs 50 lakh during the last financial year.

Rates of tax deduction

Given below is a list of deduction rates made in TDS under 194J:

  • Technical service payments: 2%
  • Call centre operators’ payments: 2%
  • Royalty payments made on behalf of sale, distribution or exhibition of cinematographic films: 2%
  • Other payments covered under this section: 10%
  • Absence of PAN card information: 20%

When is the tax deducted?

  • When the actual expense takes place, or
  • When the expense entry is recorded in the books of accounts.

Whichever happens first.

Details on services under TDS 

Professional services

People who work as servicemen can be covered under TDS. These services include medical, legal, architectural, or engineering professions. Additionally, people in accountancy, advertising, interior decoration, technical consultancy, and other professions are also included in professional services under TDS. Film artists, company secretaries, and authorised representatives were later introduced under Section 44AA. There are numerous more professions which can be categorised in the professional service section.

Technical services

Technical services also qualify under TDS. All managerial, technical, and consultancy services are linked to technical services. However, it does not consider any payment which acts like a Salary for the recipients of the income. Both technical and managerial services, as well as consultancy services, are covered under this section. Consultancy services are recognised as advisory services and act as a necessity for clients and businesses. Technical services like machines and robots do not count under this section.

Royalty

The Royalty section includes all the payments made for

  • The transfer of rights or usage of an invention, trademark, patent, etc.
  • Use of patents, models, designs, structures, etc.

Additionally, the transfer of rights related to scientific findings, literary research and study, films or videotapes for radio broadcasting can be included. However, any sale, exhibition, or distribution of cinematographic films is excluded from TDS.

Non-compete fees

Non-compete fees can include any payment in cash or kind in return for services and other actions like sharing any licence, patent, franchise, trademark, and commercial or business rights. Additionally, any kind of processing and manufacturing information will also be included.

Time limits of TDS deductions

TDS deductions need to be made on a timely basis. Any delay in payment or skipping payments may cost you heaving interest rates as penalties. Here, you will find all the information you need to understand TDS time limits for tax deductions:

Non-government employees

If you are not a government employee, you must make TDS payments on the 7th day after the end of the month. This time limit is applicable for people who have made tax deductions before the 1st of March. However, if you had made the tax deductions later in March, you have to pay them by April 30th.

Government employees

If you are a government employee, you have to make the TDS payment on the 7th day from the end of March. Like non-government employees, this is applicable if the TDS deduction was made on 1st March. In other cases, the deduction is made on the date of payment to the payee. However, the fine for the same is submitted 7 days after the end of March.

Penalties for not deducting or late deduction of TDS

All professionals and working citizens must make tax payments on time. If the TDS amount is not paid or deducted on time, has several outcomes, such as:

Discontinuation of 30% of the expenditure

30% of the expenditure will be discontinued. The total amount will be re-allowed after the pending TDS is paid to the government.

Additional interests until the date of payment

If there is a delay in tax payment, an extra penalty will be added to the total TDS amount to the Government. The rate of interest is determined by either of these two manners:

Where no deduction of tax is made or paid to the government

Interest shall be payable at 1% per month.

Even if the tax is deducted, if it is not paid to the government, interest will be charged. The interest applicable here is: 1.5% per month.

FAQs

Who is eligible to deduct TDS payment under Section 194J?

TDS needs to be deducted from individuals if they make the payment towards professional or technical services covered under this section. The amount paid should exceed Rs 30,000 per annum for TDS deduction.

What is the TDS limit?

The TDS amount that gets deducted from a taxpayer’s funds is calculated according to the assigned rates of the income group that particular year. Currently, people with a yearly income above Rs.2,50,000 are liable for tax deductions under Section 194J. Therefore, the TDS limit for exemption of TDS is under Rs.2,50,000.

What is the TDS rate for salary?

Salaried employees have to pay TDS deductions at fixed rates. These rates are set according to their yearly income groups or slabs. The general range of TDS rates is between 20℅-30℅ , depending on the income slab. These rates are subject to revisions every fiscal year.

How can I claim TDS under Section 194J?

People who have a yearly income below Rs.2,50,000 should not be paying TDS deductions. If you are being charged with TDS despite being in this category, you can file an Income Tax Return to claim a refund of the deducted money from the government.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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