One of the most important sorts of payments made by a corporate organization is professional fees or fees for technical services. Professional fees include, but are not limited to, payments given to doctors, lawyers, chartered accountants, engineers, etc. Such payments made to residents are governed by Section 194J.
When certain payments are made to a particular resident, a person is only required to deduct Tax Deducted at Source (TDS) at the rate of 10% in accordance with the rules and regulations of Section 194J of the Income Tax Act, 1961.
Payments that fall under Section 194J
When the following payments are made to a resident in a fiscal year (and are greater than Rs. 30,000), a person must deduct TDS at the rate of 10%:
Amount charged as a professional services fee Amount charged as a technical service fee Amount charged as a non-compete fee under Section 28(VA) of the Income Tax Act Royalty Payments made to Directors Other Than Salary.
Legal Fees for Businesses That Are Tax Deductible
These consist of:
Drafting and reviewing contracts Real estate closings for businesses that buy and sell residential properties (including rental properties) or commercial propertiesAttorney fees, court costs and similar expenses related to the production or collection of taxable income Fees for defending against criminal charges related to trade or business Legal fees to file for bankruptcy (of the business, not personally)Attorney fees paid for filing lawsuits and defending the business in any lawsuits suits Business incorporation and business planning costs Business immigration expenses (if you are moving an employee to the US from abroad)Real estate closings for commercial properties or businesses that buy and sell residential properties (including rental properties)
Threshold amount for tax deductionTax must be subtracted if the total amount paid for professional and technical services during the year exceeds Rs 30,000. Please note that this maximum limit of Rs 30,000 applies to each item or payment separately. For instance, ABC company paid Mr. PK Rs 25,000 in royalties and Rs 20,000 in fees for technical services. In this case, the ABC Company is not required to withhold TDS from payments made to Mr. PK. This is so that each item, such as royalties and fees for technical services, has a separate limit of Rs 30,000. However, there is no such limit for payments (commission, fees, or remuneration) made to a director by the company. No matter how little the tax is, it must be taken into account.
The TDS rate for professional fees is 10%; the surcharge, the education levy, or the SHEC cannot be added on top of the TDS rate. TDS on commission income will therefore be withheld at the source at the rates described above. If the deductee has not provided a Permanent Account Number (PAN), the rate of TDS on commission income will be 20%.
In the following circumstances, TDS on Professional Fees is not needed to be withheld:
No tax must be withheld where the amount is paid by an Individual or Hindu Undivided Family exclusively for personal use, if the Assessee has applied to the Assessing Officer for no TDS or TDS at a lower rate in accordance with Section 197.
If the professional fee paid or payable during the financial year is less than Rs. 30,000/-Penalty, no tax deduction is necessary.
Delay in Deduction: A person is subject to paying interest at a rate of 1% per month or fraction of a month if they fail to deduct TDS on professional fees.
Payment Delayed: If someone deducted TDS on professional fees and did not pay the TDS within the allotted period, they are liable to pay interest at the rate of 1.5% per month (or fraction thereof) for the payment delay.
Please feel free to contact the professionals at Srv Associates if you have any questions about filing TDS returns as a deductor.Our TDS Return Filing Software, which supports TDS on Salary payments Form 24Q, Rent, Interest, Commission, and other Non-salary Transactions (Form 26Q), NRI (Form 27Q), and TCS Form 27EQ, can provide you with thorough assistance.
deadline for TDS deposits under Section 194J
The following requirements must be adhered to regarding the deadline for TDS deposit under this section:
In some circumstances, TDS can be deposited within a week of the month-end in which the tax deduction has been made. If the payment is made on the last day of the fiscal year, the TDS deposit must happen within two months of that financial year’s end in which it was credited. Some special cases may be allowed to deduct TDS every quarter.