Understanding Section 194J of the Income Tax Act: Everything You Need to Know

Section 194J of Income Tax Act: A Comprehensive Guide for Taxpayers

If you are a taxpayer who earns income through professional or technical services, you must be aware of Section 194J of the Income Tax Act. This section deals with the deduction of tax at source on fees for professional or technical services. In this blog post, we will provide you with a comprehensive guide on Section 194J of the Income Tax Act and help you understand its various aspects.

What is Section 194J of the Income Tax Act?

Section 194J of the Income Tax Act mandates the deduction of tax at source on fees for professional or technical services. This section applies to payments made by any person to a resident for services rendered in the course of carrying on any business or profession.

Who is Liable to Deduct TDS under Section 194J?

Any person who makes payment to a resident for services rendered in the course of carrying on any business or profession is liable to deduct TDS under Section 194J of the Income Tax Act. The following entities are liable to deduct TDS under Section 194J:

1. Any company, whether public or private
2. Any firm, whether registered or not
3. Any individual or Hindu Undivided Family (HUF) whose accounts are required to be audited under Section 44AB of the Income Tax Act
4. Any individual or HUF who is carrying on business or profession and whose gross receipts exceed Rs. 1 crore in any previous year
5. Any cooperative society

What is the Rate of TDS under Section 194J?

The rate of TDS under Section 194J of the Income Tax Act is 10%. However, if the payment is made to a person who has not provided his or her PAN, the TDS rate will be 20%.

What are the Exemptions and Threshold Limits under Section 194J?

The following are the exemptions and threshold limits under Section 194J of the Income Tax Act:

1. If the total fees for professional or technical services do not exceed Rs. 30,000 in a financial year, TDS is not required to be deducted under Section 194J.
2. No TDS is required to be deducted under Section 194J on payments made to the government or any local authority.
3. No TDS is required to be deducted under Section 194J on payments made for the purpose of the business of plying, hiring or leasing goods carriages, if the payee provides his or her PAN to the payer.

What are the Consequences of Non-Compliance with Section 194J?

Non-compliance with Section 194J of the Income Tax Act can result in various consequences, such as:

1. Interest at the rate of 1% per month or part of a month on the TDS amount from the date on which it was deductible to the date on which it was actually deducted.
2. Penalty under Section 271C of the Income Tax Act, which can be up to the amount of TDS that was not deducted or paid.
3. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, which can be up to the amount of TDS that was not deducted or paid.

The following are the services covered under Section 194J of the Income Tax Act:

1. Professional services: These include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising, and any other profession that requires specialized knowledge and skills.
2. Technical services: These include services related to the development, design, programming, testing, and maintenance of computer software, hardware, or any other electronic or mechanical equipment.

It is important to note that the services must be rendered by a resident in India to attract the provisions of Section 194J of the Income Tax Act.

How to Deduct TDS under Section 194J?

The following are the steps to deduct TDS under Section 194J of the Income Tax Act:

1. Determine whether the payment made is covered under Section 194J.
2. Obtain the PAN of the payee.
3. Determine the rate of TDS applicable.
4. Deduct the TDS at the applicable rate.
5. Deposit the TDS amount with the government within the prescribed due date.
6. Issue a TDS certificate to the payee in Form 16A.

It is important to ensure timely deposit of TDS and issuance of TDS certificate to avoid any penalties or consequences.

Can the Payee Claim TDS Credit under Section 194J?

Yes, the payee can claim TDS credit under Section 194J of the Income Tax Act. The TDS amount deducted can be claimed as a credit against the payee’s tax liability at the time of filing the income tax return.

What are the Reporting Requirements under Section 194J?

The following are the reporting requirements under Section 194J of the Income Tax Act:

1. Quarterly statement in Form 26Q: The deductor is required to furnish a quarterly statement of TDS in Form 26Q to the tax department. This statement must be filed within the prescribed due date.
2. Annual statement in Form 27EQ: The deductor is also required to furnish an annual statement of TDS in Form 27EQ to the tax department. This statement must be filed within the prescribed due date.

Conclusion

Section 194J of the Income Tax Act is an important provision that applies to payments made for professional or technical services. It is important for taxpayers to understand its various aspects, such as the liability to deduct TDS, rate of TDS, exemptions and threshold limits, consequences of non-compliance, and reporting requirements. Compliance with Section 194J is crucial to avoid any penalties or consequences and ensure smooth business operations.

Read more useful content:

• section 145 of income tax act
• section 10e of income tax act
• section 9 of the income tax act
• section 94b of income tax act
• section 206aa of income tax act

Frequently Asked Questions (FAQs)

1. What is Section 194J of the Income Tax Act? Section 194J of the Income Tax Act is a provision that requires the deduction of TDS on payments made for professional or technical services.
2. Who is liable to deduct TDS under Section 194J? The person making the payment for professional or technical services is liable to deduct TDS under Section 194J.
3. What is the rate of TDS under Section 194J? The rate of TDS under Section 194J is 10% for individuals and Hindu Undivided Families (HUFs) and 2% for other taxpayers.
4. What is the threshold limit for TDS deduction under Section 194J? The threshold limit for TDS deduction under Section 194J is Rs. 30,000 in a financial year.
5. Is there any exemption from TDS deduction under Section 194J? Yes, there are certain exemptions from TDS deduction under Section 194J. For example, if the payment is made to a person whose total income is below the taxable limit, or to the government, or to a specified institution, TDS deduction may not be required.
6. What is the due date for depositing TDS under Section 194J? The due date for depositing TDS under Section 194J is the 7th of the month following the month in which the deduction is made.
7. What is the penalty for non-compliance with Section 194J? Non-compliance with Section 194J may attract penalties such as interest, late filing fees, and prosecution under the Income Tax Act.
8. Can the payee claim TDS credit under Section 194J? Yes, the payee can claim TDS credit under Section 194J against their tax liability at the time of filing the income tax return.
9. What are the reporting requirements under Section 194J? The reporting requirements under Section 194J include the filing of quarterly and annual statements of TDS in Forms 26Q and 27EQ, respectively.
10. Is it necessary to obtain PAN of the payee for TDS deduction under Section 194J? Yes, it is necessary to obtain the PAN of the payee for TDS deduction under Section 194J.