Learn about the individuals or entities responsible for deducting TDS under Section 194J. Tax deductions are essential to improve the government's revenue. Simplifying tax details for clearer understanding.
Introduction
TDS, or Tax Deducted at Source, plays an important role in curbing tax evasion. It involves deducting a certain amount of tax from substantial payments like rent, commission, professional fees, salary, and more. This deduction occurs once the money is credited to the payee or paid directly. Even salary payments and life insurance policies aren’t exempt.
The deducted amount is then deposited with the Income Tax Department, ensuring a systematic approach to tax compliance. In this blog, we will look into the specifics of TDS under Section 194J, exploring who holds the responsibility and understanding the intricacies of this crucial tax provision.
The Significance of TDS in Financial Landscape
Tax Deducted at Source (TDS) serves as a crucial element in the financial framework, holding immense importance for both taxpayers and the government. The primary roles and importance of TDS can be outlined as follows:
Ensures Timely Tax Collection:
TDS facilitates the timely collection of taxes by deducting a portion at the source itself, preventing potential delays or evasion.
Steady Revenue Stream for the Government:
Acting as a steady source of revenue, TDS contributes significantly to the government’s financial stability by collecting taxes throughout the year.
Reduces Tax Evasion:
TDS acts as a deterrent to tax evasion, promoting transparency and accountability in financial transactions.
Streamlines Tax Compliance:
By deducting taxes at the source, TDS simplifies the tax compliance process, making it more efficient for both taxpayers and authorities.
Promotes Financial Discipline:
The automatic deduction of taxes encourages financial discipline among individuals and businesses, ensuring regular contributions to the government exchequer.
Aids in Budget Planning:
For taxpayers, TDS offers a structured approach to budgeting, as it accounts for tax liabilities in a phased manner throughout the year.
Eases Burden on Taxpayers:
Instead of a lump-sum payment at the end of the financial year, TDS distributes the tax burden, making it more manageable for taxpayers.
What is Section 194J And Who is Liable to Deduct TDS Under Section 194J?
The rules and regulations of section 194J of the Income-tax Act were introduced in 1961. A person’s tax is deducted from the source based on different rates. Different types of payments come under section 194J like TDS on professional fees, TDS for technical service fees, Non-compete fees as per section 24 (VA), and Royalty tax. These are the people liable to deduct TDS under section 194J. Let us learn:
- TDS on Professional Fees
The first and the most important type of payment that comes under Section 194J is the TDS on professional fees. The professional fees are implied on services of an individual like medical, engineering, legal, or architectural profession.
Other services include interior decoration, accountancy, technical consultancy, advertising, film artists, authorised representatives, company secretaries, event managers, sportspersons, commentators, umpires, anchors, coaches, referees, trainers, team physicians and physiotherapists, and sports columnists or other professions accepted under section 44AA.
- TDS on Technical Services
The second type of payment that comes under 194J is those that provide technical services. Technical services include services provided by individuals for consultancy and technical and managerial services. However, services such as assembly, mining, construction, etc., are not considered technical services.
- TDS on Non-Compete Fees
A non-compete fee is the amount of money received either in cash or in return for an agreement that restricts the person from sharing the patent, license, franchise, trademark, commercial or business rights, etc., that are likely to be used in manufacturing, processing, etc.
- TDS on Royalty
The Royalty fee is for transferring rights for innovation, model, secret formula, trademark, design, or Patent Search. Further, it includes sharing information about innovations, patents, formulas, etc.
- The Rate at Which the TDS is deducted
There is a fixed rate for Deducting tax under section 194J of the Income Tax Act. 10% is the rate of TDS based on which the TDS is deducted for Professional, Technical, Non-compete, and Royalty fees in a fiscal year. However, remember the amount from which the tax is deducted should be above 30,000 INR.
- TDS on Professional Fees are to be deducted by whom?
Now, most of us doubt who deducts TDS from professional fees? The company or organisation for which the employee works is the tax deductor of the company. To deduct TDS before making the payment is the responsibility of the deductor, and they should also ensure that the amount deducted is deposited to the Government of India.
- When is no TDS on professional fees to be deducted?
There are many professional areas where TDS is not deducted, like legal and professional fees associated with incorporation, acquisitions, disposals, and destruction of assets. Further, the TDS of professional fees is not deducted if the individual’s income is below 30,000 INR. Thus, these are when TDS is not deducted.
- Advantages of TDS deduction
The TDS deduction has different advantages, and some of them are as follows:
- It prevents the deductor from defaulting on paying taxes.
In most cases, when the company or organisation is huge, the responsibilities of its head automatically increase and can sometimes get complicated. Further, in such cases, they tend to default on paying taxes to the Government used by them for the welfare and development of the country. However, by regular TDS deduction, they will be able to prevent the default in paying taxes.
- TDS ensures the stability of Government Revenues.
Regular Tax deduction in a company improves the stability of Government revenue as we know that most of the govt revenue depends upon the taxes paid by the citizens of India. Further, stability in tax collection depends on the regular tax deductions of various companies or organisations.
- TDS helps in widening the scope of base tax collection.
The base tax is the total amount of assets or income that the respective authorities can tax, for instance, in India, the Government of India. Further, it is used to calculate the tax liabilities of an individual or organisation. Regular tax deductions help widen the scope of the base tax collection.
- Both the deductor and the deductee are benefited.
The regular tax deductions help both the deductor and the deductee equally benefit. Because the standard TDS deductions will help reduce the tax liabilities on both the company or organisation and the employee. Thus, the TDS deduction is suitable for both the deductor and the deductee.
- A tax deduction reduces the burden of paying huge amounts of taxes.
Distributing the total amount of tax to be paid over months makes the company and the individual tax payment easy. Further, it reduces the burden of the company or organisation and individual from spending huge amounts of taxes. As a result, you get an effortless tax payment option.
Conclusion
Overall, TDS deduction on Professional, Technical, Non-compete, and Royalty is essential to improve the revenue of the Government: https://www.incometax.gov.in/iec/foportal/. Further, it helps improve the nation’s welfare, development, and progress. Most of all, tax deductions help reduce the tax liabilities of an individual and company or organisation.
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