Transcript 194J-TDS On Professional Fees

194C – TDS on Payments to Contractor
 194J – TDS on fees for Professional or
Technical Services

M. V. Damania & Co.
Chartered Accountants
Prepared By:
Jagrati Kookada
Shaili Shah

TDS is one of the modes of collection of taxes, by
which a certain percentage of amounts are deducted
by a person at the time of making/crediting certain
specific nature of payment to the other person and
deducted amount is remitted to the Government
account.

We have mainly emphasized on section 194C and
194J as there is a confusion under which head TDS
has to be deducted. There are certain overlapping
issues under both the heads which are focused in
this presentation along with supporting case laws.

Applies
to a person
responsible for “paying any
sum to a resident contractor or sub-contractor” .
Time of Deduction : earlier of
credit of any sum to the account of contractor
or
at the time of payment


Nature of Payment:
deduction is to be done for payment for carrying out
any work(including supply of labour) in pursuance of a
contract between the contractor and a specified person .
 Meaning of Work
"Any work" means
any work and not
only a “contract
for work"
supply of labour to
carry out a work
Work includes:
› advertising;
› Broadcasting and telecasting including production of
programs for such broadcasting or telecasting ;
› carriage of goods or passengers by any mode of transport
other than by railways;
› catering ;
› manufacturing or supplying a product according to the
requirement or specification of a customer by using
INCLUDES
DOES NOT INCLUDES
material supplied
by the customer
(contract of work),
material purchased from
a person other than
such customer
(Contract for sale)
Therefore, 194C will cover all those cases where work is
carried out for any tangible product which is not equal to
contract for sale.
contract

A
B
supply uniform
as per A’s specification
purchasing
material from
another person
Dominant object is the sale of product as product
and not just execution of work.
contract

A
B
supply uniform
as per A’s specification
Material
supplied by
A.
Dominant object is the execution of work and not
the supply of uniforms.

principal object of the
contract is one of work
and labour even though
some material might
have been used in the
execution of the
contract.
SC Case Law

main object is the
transfer of property and
the delivery of the
possession of a movable
property even though
goods might have been
manufactured as per the
requirement and
specification of the client

Article is brought into
existence by applying
work and labour and
materials are consumed
in execution of the work.

article has an identifiable
existence prior to its
delivery to the
purchaser, and when the
title to the property
vests with the purchaser
only upon delivery.
provides technical know how

Assessee
Third Party
Manufacturer
raises an invoice for the goods
manufactured and accordingly
supplied
purchases raw materials,
obtains license, pays Sales
tax, excise and owns
manufacturing facility
Mr A.
(Client)
XYZ Advertising & Co.
(Advertising Agency)
Sony TV
(Media)
Pays Rs. 1,00,000 for
Makes payment for
designing an adv.
giving ad on their
194C
Channel
Makes payment to
No 194C
models, artists etc.
194J
Payment directly to Sony TV – 194C

As per the circular no. 715 dated 08-08-1995,
Nature of payment
for carrying out a work
Therefore, 194C will be applied
Cannot be taken under technical service under 194J



Rate of TDS:
1% -for Individual and HUF recipient
2% - for any other person recipient
For 1 single Contract – 30,000/For aggregate in a year – 75,000/-
Exemptions:
 No TDS by an Individual or an HUF -- personal purposes

No TDS-- for sum credited/paid to a contractor during
the course of business of plying/hiring/leasing of
good/carriages on furnishing Pan to the payer/ deductor .

Applies
to a person
sum to a resident as”:
1.
Fees for professional services,
Fees for technical services,
Any remuneration , fee or commission by whatever name
called paid to a director, which is not in the nature of salary
Royalty,
Any sum referred to in clause (va) of section 28 which relates
to non-compete payment, or
2.
3.
4.
5.
responsible for “paying any
 Point of deduction:
Earlier ofThe time of actual payment of such fees
or
its credit to the account of the payee.
 Tax Rate Applicable:
10% on such income.
Cut off amount:
No TDS – if aggregate of the amounts credited or paid to
payee does not exceed:
30,000
Professional
Services
Technical
Services
Royalty
NonCompete
Fees

Meaning of Professional Services
Professional Services means services rendered by a person in
the course of carrying on:
1. legal,
2. Medical consultancy for business purpose,
3. engineering,
4. architectural profession,
5. the profession of accountancy,
6. technical consultancy ,
7. interior decoration,
8. Advertising consultancy and add designs,
9. such other profession as is notified by the Board for the
purposes of section 44AA or of this section.

Meaning of “Fees for Technical Services”
Fees for technical services means any consideration
(including any lump sum consideration) for the rendering of
any:
managerial,
2. technical or
3. consultancy services (including the provision of services of
technical or other personnel) but does not include
consideration for any service which would be income of the
recipient under the head “Salaries”.
* As per the Supreme Court judgment in CIT v. Bharti Cellular
LTD. (SC) , technical service would include services rendered
by a human; it would not include any service provided by
machines or robots.
1.
Mr. A.
(assessee)
Paid
Rs 5.17 crore
To BSE for “Bolt” system
as “transaction charges”
(in the nature of managing
and maintaining the system)
? -Will TDS be deducted on amount paid as transaction charges?
Ans-Such payments are included in definition of “fees for
technical services”. Hence TDS u/s 194J will apply.
BSNL/ MTNL
Provides services
of
Interconnect/
port/access/toll
194J – Reference to only technical service rendered by a human; it
would not include any service provided by machines or robots.
Therefore, it will not be construed as technical service and therefore
194J will not apply.
Assessee
Assessee
Business
Internet access
services
Availment of Network
BSNL/MTNL
operating infrastructure
Business
Payment is made by
subscribers
“cellular mobile
telephone facility“
Activity
Nature
Work
Physical and Tangible
Service
Intellectual or Mental
Service Contract
Not involving any work – No 194C
Eg- Services of engineers, accountants,
architects, consultants.
However, covered under 194J.
Payment
Recruitment Agency
For
services rendered
? -Will TDS on payment made to recruitment agency
will be deducted under section 194C or 194J?
Ans-Section 194C apply to a contract for carrying out
any work which results into a tangible product.
Payments to recruitment agencies are in the nature of
payments for services rendered. Hence, TDS will be
deducted under section 194J and not 194C.

Notes:
1. No surcharge, education cess or SHEC shall be added to the abov
e rates. Hence, tax will be deducted at source at the basic rate.
2. The rate of TDS will be 20% or higher as applicable in all cases, if P
AN is not quoted / provided by the deductee on or after 1-4-2010.
3. An Individual or a Hindu undivided family, whose total sale, gross
receipts or turnover from the business or profession carried on
by him exceed 1 crore or 25 lakhs respectively.
4. Credit made in suspense/Adjustment a/c -TDS to be deducted.
5. As per section 197, on application by payee in Form no. 13, if the
Assessing Officer is satisfied that this total income justifies no
deduction of tax or deduction at lower rate, he may issue a
certificate in Form No. 15AA to that effect directly to the payer.
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