TDS UNDER 194J
Section 194J of the Income Tax Act, 1961, is a provision that mandates the deduction of tax at source (TDS) on payments made for certain specified professional or technical services. The section requires the person making the payment (referred to as the payer) to deduct TDS at the prescribed rate from the amount payable to the payee. The purpose of this provision is to ensure that taxes are collected at the source itself, thereby facilitating revenue collection for the government and promoting tax compliance. the rate of tax deducted at source (TDS) under Section 194J of the Income Tax Act, 1961, is 10%. This means that the person making the payment for professional or technical services is required to deduct TDS at the rate of 10% from the total amount payable to the payee.
Applicability
Payers: This section applies to any person, including individuals, Hindu Undivided Families (HUFs), firms, companies, local authorities, and other associations of persons, who make payments for professional or technical services.
Payees: It applies to individuals or entities providing professional or technical services, including but not limited to:
Legal professionals such as lawyers and solicitors
Medical professionals such as doctors and surgeons
Engineers
Architects
Accountants
Technical consultants
Interior decorators
Any other professionals as notified by the tax authorities
However, it’s important to note that Section 194J does not apply to payments made to a resident individual or Hindu Undivided Family (HUF) for personal purposes.
When to deduct 194J
The time of deduction of tax at source (TDS) under Section 194J of the Income Tax Act, 1961, depends on two primary scenarios:
Time of Credit: If the payer credits the amount payable to the account of the payee, or any other account, by whatever name called, then the TDS should be deducted at the time of such credit or at the time of payment, whichever is earlier.
Time of Payment: If the payer makes the payment in cash or by any other mode, the TDS should be deducted at the time of payment.
In summary, TDS under Section 194J is required to be deducted either at the time of credit of the income to the account of the payee or at the time of actual payment, whichever occurs earlier.
Key Provisions:
Nature of Payment: Section 194J applies to payments made for professional or technical services.
Mode of Payment: The section applies when the payment is made in any mode other than cash.
Types of Payments Covered
Professional Services: This includes services rendered by a person in the course of carrying on legal, medical, engineering, architectural, accountancy, technical consultancy, or interior decoration services, or any other profession as notified by the board.
Technical Services: This includes services rendered by a person in the disciplines of engineering, architectural, scientific, or skilful techniques.
Rate of TDS: The person making the payment (referred to as the “payer”) is required to deduct TDS at the prescribed rate on the amount paid to the payee. The current rate for TDS under Section 194J is 10%.
Threshold Limit: There is no threshold limit specified under Section 194J. TDS is applicable irrespective of the amount paid.
Time of Deduction: TDS under Section 194J is required to be deducted at the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.
Filing of TDS Returns: The payer is required to file TDS returns with the tax authorities and issue TDS certificates to the payee in the prescribed format.
Exemptions
Small Payments: If the total amount credited or paid during the financial year to the payee does not exceed Rs. 30,000, TDS under Section 194J is not applicable. However, this exemption does not apply to payments made to a director or a company or a firm.
Consequences of Non-Compliance
Interest: In case of failure to deduct TDS or delay in depositing the TDS amount to the government, interest is levied as per the provisions of the Income Tax Act.
Penalties: Non-compliance with the provisions of Section 194J may attract penalties under the Income Tax Act.
Compliance Requirements
TDS Deduction: The payer must deduct TDS at the applicable rate and deposit it to the government within the stipulated time frame.
TDS Return Filing: The payer must file TDS returns on time, providing details of TDS deducted and deposited.
Issuance of TDS Certificate: The payer must issue TDS certificates to the payee in the prescribed format.
It’s essential for both the payer and the payee to be aware of the provisions of Section 194J to ensure compliance with TDS regulations and avoid any penalties or interest levied by the tax authorities.
Non applicability of TDS 194J
The provisions of tax deduction at source (TDS) under Section 194J of the Income Tax Act, 1961, may not be applicable in certain cases. Here are some scenarios where TDS under Section 194J may not apply:
Small Payments: If the total amount credited or paid during the financial year to the payee does not exceed Rs. 30,000, TDS under Section 194J is not applicable. However, this exemption does not apply to payments made to a director or a company or a firm.
Payments to Individuals/HUFs for Personal Purposes: TDS under Section 194J is not applicable on payments made to resident individuals or Hindu Undivided Families (HUFs) for personal purposes. However, if such payments exceed the specified threshold, they may be subject to TDS under other relevant provisions of the Income Tax Act.
Exempted Payments: Certain payments may be specifically exempted from TDS under Section 194J by the government through notifications or circulars. These exemptions are usually granted for specified categories of transactions or entities.
Payments below Threshold Limits: If the payments for professional or technical services do not meet the threshold criteria specified under the law, TDS may not be applicable.
In conclusion, Section 194J of the Income Tax Act, 1961, is a provision that mandates the deduction of tax at source (TDS) on payments made for professional or technical services.Understanding and adhering to the provisions of Section 194J is crucial for both payers and payees to ensure compliance with tax laws and avoid any penalties or interest levied by the tax authorities.
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