Professional and Technical Services-TDS Applicability
TDS on Professional and Technical Services
This article provides a summary of the applicability of TDS in relation to professional and technical services, which comes under Section 194J of the Income Tax Act.
Professional Services
Professional services refer to the activities pursued by the following persons:
- Architectural professionals
- Legal professionals
- Engineering professionals
- Accountants
- Interior Decorators
- Advertisers
- Technical Consultants
- Film Artists
- Company Secretary
- Sportspersons
- Event managers
- Commentators
- Anchors
- Umpires and referees
- Coaches and trainers
- Physiotherapists
- Team physicians
- Sports columnists
Technical Services
Technical services refer to those services rendered by an individual for consultancy, technical or managerial services, excluding that of assembly, mining, construction, as income from the same would be deemed as the salary of the recipient.
Non-compete Fees
Non-compete fees refers to the amount received either in cash or kind, in return for an agreement which restricts the person from sharing any license, patent, franchise, trademark, know-how, commercial or business rights and so on.
Royalty
Royalty in relation to this provision refers to the following:
- Transfer of rights in relation to an invention, secret formula, model, design, trademark or patent.
- Use of an invention, model, patent etc.
- Sharing of information related to the usage of an invention, patent, formula etc.
- Use or right to use items of equipment for industrial, scientific or commercial purposes.
- Transfer of rights related to literary work, scientific findings, films or videotapes for the purpose of radio broadcasting without any consideration for sale, exhibition or distribution of the same.
Responsibility in Deducting Taxes
Tax is deductible by any person, other than an individual or a Hindu Undivided Family, who pays the resident any sum in terms of the following:
- Professional Services.
- Technical Services.
- Any remuneration/fee/commission paid to a director, which is not in the nature of salary.
- Royalty.
- Non-compete fee according to Section 28 (va) of the Income Tax Act.
Individuals and Hindu Undivided family, who are covered in Section 44AB (Section 44AB deals with tax audit) are also required to deduct tax at source. Further, any sum credited or paid for personal purposes would be excluded from the purview of TDS.
TDS Rates for Professional & Technical Services
TDS rates applicable under Section 194J is as follows:
- 10% on such income.
- 2% if the payee is only engaged in the business of operation of a call centre.
No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rates. Moreover, the rate of TDS will be 20% if PAN is failed to be quoted.
Deposit of TDS by Deductor
The TDS deductor must have TAN registration, and should remit the TDS deducted as below:
- If the payment is made by on or behalf of the Government, tax must be deposited on the same day without the usage of challan or, on or before seven days from the end of the month in which deduction is made along with the challan.
- If the amount is credited/paid in the month of March, tax must be deposited on or before seven days from the end of the month in which deduction is made along with a challan, or by the 30th of April.
- TDS can also be deposited on a quarterly basis on the approval of the Assessing Officer.
TDS Certificate
All TDS deductors must ensure proper and timely issue of TDS certificates. TDS certificate must be issued within the following dates:
Non-Government Deductor
- The deadline for issuing certificates for the months of April-June would be the 30th of July.
- The deadline for issuing certificates for the months of July-September would be the 30th of October.
- The deadline for issuing certificates for the months of October-December would be the 30th of January.
- The deadline for issuing certificates for the months of January-March would be the 30th of May.
Government Deductor
- The deadline for issuing certificates for the months of April-June would be the 15th Of August.
- The deadline for issuing certificates for the months of July-September would be the 15th of November.
- The deadline for issuing certificates for the months of October-December would be the 15th of February.
- The deadline for issuing certificates for the months of January-March would be the 30th of May.
Cases where TDS under this Provision is not Applicable
If the amount of sum paid or credited, or its aggregate, doesn’t exceed a sum of Rs.30,000 in a given financial year, TDS deduction is not applicable. Also TDS deduction is not required for fees paid by a non-resident in return for professional and technical services.
Clarifications on TDS on Professional Services
We conclude our article by mentioning a few vital judicial decisions which has in the past clarified the applicability of TDS on certain professional and technical services:
- Fee paid to Bombay Stock exchange is not liable for deduction of tax at source.
- Subscription charges paid for procuring financial E-magazine is not inclusive of professional services and hence would avoid TDS.
- Payment made for services rendered by television channels in receiving its programs would qualify for TDS.
- Payments to stock exchange for providing infrastructure to its members will not be considered as services of technical nature, and hence wouldn’t attract provisions of Section 194J.
- Purchase of course or any study material is not inclusive of TDS.
- Stunt artists, unlike actors, wouldn’t come under the purview of TDS.
