TDS – Deduction of tax at source under Section 194J

Last Updated at: Dec 23, 2020
TDS – Deduction of tax at source under Section 194J


The Finance Minister announced extension of deadline for Income tax return filing for financial year 2018-19 to 30 June 2020


TDS(Tax Deducted at Source) is a type of indirect tax that is charged on an individual’s income.

In simple words, where any person/company is making payments such as professional fees, salary,  technical or, commission, interest, rent, and such are liable to deduct a prescribed percentage as tax from one’s total earnings and remit the same to the government.

Tax Deducted at Source (TDS) is an indirect type of tax, which is charged on the basis of an individual’s income. These transactions are covered under the Income Tax Act, 1961’s Section 194J. If you want to get more details regarding TDS, then here we have detailed all the information that will give you enough clarity.

The person liable to deduct tax at source is known as Deductor.

The person entitled to receive payment post deduction is known as Deductee.

Transactions that are covered under Section 194J

As per Section 194 J of the Income Tax Act, 1961 following payments would be applicable for TDS deduction:

    • Fees for Professional services that are performed by an individual in the areas of medical, architectural, legal or engineering. It also includes professions mentioned in section44AA plus the services rendered by sportspersons, actors, physical trainers, event managers.   
    • Charges for Technical services that are carried out by consultants, managers or technicians.
    • Remunerations paid to the director of the company such as sitting fees, fees paid for attending board meeting (excluding salary).
    • Royalty payments made in consideration of literature or scientific work, patent or copyright, design & invention, etc.
    • Non-competing fees that are paid under a contract for not sharing business operations and technical know-how like a trademark, license, franchise name or any right of similar nature.

File ITR before due date

Persons Responsible to Deduct TDS u/s 194J

Every person making payments in nature of the above-mentioned services is liable to deduct tax at source:

  1. If an individual/HUF is running a business and where his turnover/gross sales/total receipts exceed 1 crore during the preceding financial year.   
  2. If an individual /HUF is carrying on the profession and where his turnover/gross sales/total receipts exceeds 50Lakhs during the preceding financial year.

This simply means that those entities who are required to execute tax audit in the previous year need to deduct tax compulsorily.

Exemption Limit for 194J Deduction

  • Tax is to be deducted for all companies and individuals including call center operators providing such technical/professional services only if the amount of payment is higher than INR 30,000 in any year.
  • Tax is to be deducted for payments made to the company’s director, irrespective of the threshold limit.

Rate of tax deduction under section 194J

All payments as covered in this section is subject to a standard TDS rate of 10%. However, if the PAN number is not provided by the deductee to the deductor, TDS deduction takes place at the rate of 20%.  

The tax on call center operators has to be deducted at a reduced rate of 2% with effect from 01.04.2017.

Time Limit for TDS deduction u/s 194J

TDS under section 194J shall be deducted

  • At the time when actual payment of service is made or
  • When the entry related to such deduction is made in the accounts

Whichever comes earlier.

Time Limit for TDS payment u/s 194J

Payment is done TDS is deducted by the non- government deductor TDS is deducted by government
Before 1st March Deposit must be done by the 7th day of the subsequent month Deposit must be done by the 7th day of the subsequent month
During the month of March Deposit by 30th April of the same calendar year The deposit can be made on the same day but challan needs to be produced by 7th of the subsequent month

Consequences of late deduction or non-deduction of tax

If there is a delay or default in tax deduction or tax payment, the following penalties shall be applicable:

  • In the case of non-deduction of TDS, there will be a decrease in the tax benefit that is claimed in lieu of such service expenditure. 30% of the expenditure shall be turned down in the financial year in which such transaction was carried out. However, this 30% shall be re-allowed only when the TDS is timely deducted and paid to the government.   
  • In case of delay of TDS payment, a penal interest shall be levied along with the TDS amount.

–   In the case where no tax has been deducted, interest @ 1% p.m or part of the month shall be chargeable from the date when the tax was required to deducted to the date when the tax is actually deducted.

In the case where the tax was rightly deducted but was not paid, an interest @1.5% p.m. or part of the month shall be chargeable from the date when the tax was deducted to the date when the tax was actually paid to the government.

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