Section 194J(b) of the Income Tax Act

Professional services are at the heart of most modern businesses, whether it’s legal advice, digital strategy, architecture, or consultancy. These services, while essential, also fall under the scrutiny of tax laws when payments are made to the service providers.

Under the broader umbrella of 194J(b) of Income Tax Act, the Income Tax Act breaks down TDS applicability into two categories:

• 194J(a) for technical services
• 194J(b) for professional services

194J(b) of Income Tax Act specifically governs TDS on payments made to individuals or entities offering professional services. This includes professions such as legal experts, doctors, accountants, architects, coaches, and consultants, among others.

So, if a company engages a professional, say a software consultant or a marketing strategist, and the total payment exceeds ₹30,000 in a financial year, TDS must be deducted before making the payment. The deduction rate, conditions, and thresholds are clearly outlined under this sub-section, helping ensure that both payers and professionals remain tax-compliant.

194J(b) of Income Tax Act ensures that tax on professional and technical services is deducted at source, helping both the government and taxpayers manage tax responsibilities efficiently. Here’s why Section 194J(b) holds significant importance:

Section 194J(b) covers payments paid for professional services, e.g., lawyer, architect, coach, marketing professional, royalty fees etc. The section is applicable under the following circumstances:

• Professional services should be rendered by the service provider.
• Payments should be more than ₹30,000 in a financial year for TDS.
• The payer should be an Indian resident or an enterprise paying the amount.

This clause provides for the deduction of TDS on payments towards professional services, which ensures transparency and adherence

Section 194J(b) and Section 194J(a) both concern TDS on payments made for services, but they pertain to specific kinds of services. Section 194J(b) is only for royalty payments and other professional services, whereas Section 194J(a) pertains to technical services:

• 194J(b): Applied to royalty payments and certain professional service charges.
• 194J(a): Applicable on technical service charges, with TDS being deducted.

The e-TDS code helps in proper filing and correct tax treatment for the payments.

The TDS rate under Section 194J(b) is based on whether the recipient furnished their PAN or not. If the recipient furnishes a valid PAN, the TDS rate is 10%. In case of no PAN, the rate rises to 20%. Such a higher rate is applicable since PAN is vital for tax identification and reporting, without it, you pay extra.

• With PAN 194J TDS Rate: TDS is deducted at 10%.
• Without PAN 194J TDS Rate: TDS is deducted at 20%, as PAN is needed for correct reporting of tax.

Besides, persons or entities liable for deduction of TDS under Section 194J(b) must also submit ITR-3 or ITR-4 forms.

• ITR-3 is for individuals and HUFs with income from a profession or business.
• ITR-4 is for individuals, HUFs, and firms availing themselves of the presumptive taxation scheme.

TDS under Section 194J(b) needs to be deducted by any entity or person making payments for professional services. These include:

• Businesses pay for consultancy or other professional services.
• Corporations making payments for audit, marketing services etc.
• Freelancers or contractors offering professional expertise to organisation.

The payer handles deducting and depositing the due TDS in accordance with tax laws. The same applies if the payment is more than the TDS on professional fees limit of ₹30,000 as identified under Section 194J(b), requiring TDS.

Check this step-by-step guide to calculate TDS under Section 194J(b):

Identify the payment amount: Determine the amount of payment made for the services. Check if the payment is above ₹30,000, if it is, TDS shall be applicable.

Apply the TDS rate: 10% if the receiver has a PAN. 20% if the receiver does not have a PAN.

Deposit the deducted TDS: Ensure the deducted TDS is deposited in the government account on time.

To claim a lower deduction of TDS under Section 194J(b), taxpayers can file Form 13 with the Income Tax Department. The form is filled out when a taxpayer thinks that the TDS being deducted is excessive.
To apply, download Form 13 from the Income Tax website, fill in the details as required, and submit reasons to seek a lower deduction. The department will scrutinise the application, and on being approved, the reduced TDS rate will be granted for future payments.

While paying 194J(b) TDS, there are some important elements tax payer needs to keep in mind:

In order to avoid interest under Section 234B, follow the following tips:

• PAN of the receiver: To use the correct rate of TDS.
• TDS deducted: The actual TDS deducted at source.
• Challan details: Details of the payment made to the government.
• TDS certificate: Form 16A, which is a certificate of TDS deducted and given to the recipient.

Taxpayers under Section 194J(b) are required to state the deducted amount in their Income Tax Returns (ITR). The respective forms for this are:

• ITR-3: For individuals and Hindu Undivided Families (HUFs) receiving income from business or profession.
• ITR-4: For individuals, HUFs, and businesses who choose the presumptive taxation regime.

These returns enable taxpayers to avail the credit of TDS and claim any refund due, facilitating correct reporting of deducted tax.