Key Difference in TDS Section 192 vs. Section 194J

Key Difference in TDS Section 192 Vs. Section 194J

Understanding the difference between Section 192 and Section 194J is crucial for employers, consultants, tax professionals, and HR/payroll teams. Though both relate to TDS , their scope, applicability, and rates are fundamentally different. Misapplication can lead to penalties, litigation, and compliance risk.

What is Section 192

Section 192 applies when salary is paid to an individual under an employer-employee relationship. Key Features of Section 192 :

• TDS is deducted based on actual salary paid.
• Deduction is made as per applicable income tax slab rates.
• The employer is responsible for TDS deduction.
• Declarations required from employee: PAN, Form 12BB, investment proofs.
• TDS is dynamic – calculated on estimated annual income and adjusted monthly.
• Example: A full-time Chartered Accountant employed on payroll with fixed working hours, leave benefits, and PF is covered u/s192.

What is Section 194J

Section 194J applies to payments made for professional or technical services rendered without an employer-employee relationship. Key Features of Section 194J :

• Flat 10% TDS on the gross amount (7.5% in FY 2020–21 for COVID relief).
• Applies to CAs, lawyers, doctors, engineers, architects, consultants, etc.
• Deductor can be any person (Individual/HUF, if under tax audit).
• TDS is not slab-based – it’s a fixed percentage of the billed amount.
• No declarations for deductions under Chapter VI-A (e.g., Section 80C).
• Example: A freelance CA who performs an annual statutory audit for a company and raises an invoice is covered u/s194J.

Section 194J – TDS on Professional and Technical Services

• Who is Liable to Deduct TDS : Any person (including individuals and HUFs if turnover exceeds ₹1 crore (for business), or ₹50 lakhs (for profession) in the preceding financial year)
• Who is the Payee : Any resident person receiving Professional fees, Technical service fees, Royalty, Non-compete fees under Sec 28(va), Director’s fees/commission (if not under Sec. 192)
• When to Deduct TDS: TDS must be deducted at the earlier of Credit to the account of the payee (even if credited to a suspense account) or Actual payment (by cash, cheque, or any other mode)

Exemptions from Deduction u/s 194J – TDS on Professional and Technical Services

If an individual or HUF pays fees exclusively for personal purposes, no TDS required. And in case Payments by non-residents without a business presence in India may also be exempt, per CBDT circular.

Nature of Payments Covered u/s194J

S. No.	Nature of Payment	Threshold Limit (FY 2024-25)	TDS Rate
1	Professional Fees (CAs, doctors, lawyers, etc.)	INR 30,000 (INR  50,000 w.e.f. 01.04.2025)	10%
2	Technical Services	INR 30,000 ( INR 50,000 w.e.f. 01.04.2025)	2%
3	Royalty (except for films)	INR 30,000 (INR 50,000 w.e.f. 01.04.2025)	10%
4	Royalty – Cinematographic Films	INR 30,000	2%
5	Call Centre Services	INR  30,000	2%
6	Non-compete Fees	INR  30,000 (INR 50,000 w.e.f. 01.04.2025)	10%
7	Remuneration / Commission / Sitting Fees to Director	No threshold	10%

Payments to directors (not covered u/s192) are always subject to TDS u/s194J, without any minimum threshold.

Key Clarifications and Judicial Views

• CBDT Circular No. 726 (1995): No TDS is required under 194J for payments made by foreign companies through banking channels to residents, where the non-resident has no PE or business connection in India.
• Sitting Fees Example: X Ltd. pays:
  • INR 10 lakh salary to Managing Director → TDS u/s192
  • INR 10,000 sitting fee → TDS u/s194J @10% (no threshold exemption)

When Lower/Nil TDS Deduction apply : The payee can apply using Form 13 u/s 197 for lower or nil deduction. Subject to approval from the Assessing Officer.

Comparison Table: Section 192 vs. Section 194J

Particulars	Section 192 – Salary	Section 194J – Professional Fees
Nature of Relationship	Employer – Employee	Principal – Independent Professional
Nature of Payment	Salary (fixed, structured)	Professional / Technical Services
TDS Rate	As per income tax slab	Flat 10% (7.5% for FY 2020–21)
PAN Requirement	Mandatory	Mandatory
TDS Calculation Basis	On estimated annual taxable salary	On gross invoice amount
Declaration by Payee	Form 12BB, investment proofs, etc.	Not applicable
TDS Certificate	Form 16	Form 16A

Common Confusion Scenarios

Scenario	Applicable Section
Retired govt. officers appointed as advisors	Section 192 if full-time; Section 194J if part-time/independent
Visiting doctors in hospitals	Section 192 if regular staff; Section 194J if visit-based consultants
Consultants with fixed reporting hours	Likely Section 192
Freelancers paid per assignment	Section 194J

CBDT Clarification and Judicial Precedents Comparison of Section 192 vs. Section 194J

• CBDT Circular No. 715 (1995): Even if termed as a “consultancy fee,” if the relationship is of employment, TDS must be u/s192.
• Supreme Court – Ram Krishna Vedantam v. UOI (2020): Nature of control, working hours, supervision, and reporting determine if an employer-employee relationship exists.
• KPMG v. CIT (2011): Merely issuing Form 16A (for Section 194J) does not prove correctness of the TDS deduction; the actual working arrangement is what matters.

Control Test Ask yourself Is taxpayer 

• Does the person follow a fixed work schedule?
• Are they under your supervision and reporting structure?
• Do they receive PF, leave, gratuity, or other employee benefits?

If YES, it’s likely Section 192.

Implications on TDS is wrongly deducted u/s194J instead of Section 192

• Section 192 is for employees receiving salaries under a structured employment contract, while Section 194J applies to independent professionals receiving fees for services. Correct classification ensures proper compliance, prevents litigation, and avoids penalties. Always base your decision on the actual nature of the relationship, not just the designation or contract label.
• If TDS is wrongly deducted u/s194J (professional services) when it should have been u/s192 (salary), the Tax Dept.may Disallow the expense u/s40(a)(ia), Raise a short deduction demand and Impose interest and penalties. This may also lead to litigation and compliance notices, so proper classification is critical.

Position Part-time consultants always covered u/s194J

• Generally, yes. Most part-time consultants are considered independent professionals, and their compensation falls u/s194J. But, if their engagement closely resembles that of an employee (e.g., regular hours, control, office attendance, benefits), then Section 192 could apply even for part-time roles.

Section 194J(1)(ba): Applicability to Directors’ Remuneration

• What is Remuneration : Remuneration refers to the complete compensation package, encompassing both monetary and non-monetary benefits, paid to an individual in return for services rendered to an organization. When referring specifically to directors, this compensation is termed Directors’ Remuneration, which has a different tax treatment compared to regular employee compensation.
• Understanding the nature of payment and the relationship between the director and the company is crucial in determining the correct TDS section under the Income Tax Act. Misclassification can lead to penalties for non-compliance.

Types of Directors : Directors can broadly be classified into the following categories:

Executive Directors : These are involved in the day-to-day operations of the company and generally receive salary-based remuneration, much like regular employees. There exists an employer-employee relationship, making them subject to TDS u/s192.

Non-Executive Directors : These directors do not participate in daily operations but provide strategic direction and oversight. Their compensation may include sitting fees, commissions, or similar payments. Notably:

• Independent directors must not have been associated with the company as an employee, proprietor, or partner during the preceding three financial years before appointment.
• Remuneration to such directors typically does not constitute salary, and TDS is deducted u/s194J.

Section 194J(1)(ba) of the Income Tax Act, 1961, requires deduction of TDS at 10% on any remuneration, fees, or commission paid to a director, except when such payment is in the form of salary (which is governed by Section 192). TDS is applicable if the total payment exceeds ₹30,000 in a financial year. Key Highlights of Section 194J(1)(ba)

• Applicable only where no employer-employee relationship exists.
• If the payment qualifies as salary, it falls u/s192.
• If the payment is not in the nature of salary (e.g., commission, sitting fees), it falls u/s194J(1)(ba).
• For non-resident directors, Section 195 applies, regardless of the type of payment.

Categories of Payments u/s194J

Section 194J covers TDS on professional and technical service payments to residents. Key examples include:

• Fees for professional services (e.g., lawyers, CAs, doctors, engineers, consultants).
• Technical services (managerial, technical, or consultancy services).
• Royalty payments (use of patents, trademarks, intellectual property).
• Remuneration/fees/commission to directors, excluding those treated as salary.
• Non-compete fees.

Taxability of Directors’ Remuneration in Private Companies

When Remuneration is Treated as Salary (Section 192 Applies)

• This applies when there is a clearly defined employer-employee relationship.
• Executive directors receiving monthly salaries fall under this category.
• TDS must be deducted as per slab rates, considering deductions and exemptions available under salary income.

When Remuneration is Not Treated as Salary (Section 194J Applies)

• Applies when directors receive sitting fees, commission, or other forms of compensation without an employer-employee relationship.
• Usually relevant for non-executive or independent directors.
• TDS must be deducted @ 10%, with no threshold exemption beyond ₹30,000.

Key Determining Factor: Nature of Relationship

Nature of Relationship	Type of Director	Applicable Section
Employer-Employee	Executive Director	Section 192
No Employer-Employee Relationship	Non-Executive/Independent	Section 194J(1)(ba)
Director is Non-Resident	Any	Section 195

Quick Compliance Checklist for taxpayer while deducting TDS compliance

• Issue correct TDS certificate:
  • Form 16 for Section 192
  • Form 16A for Section 194J
• Verify nature of the contract, not just title (“advisor”, “consultant”, etc.)

• Deduct TDS at applicable rates
• Document the terms of engagement for evidence
• Issue Form 16A to the recipient
• Deposit TDS within due date (7th of following month)
• File TDS returns in Form 26Q
• Maintain agreements/invoices justifying TDS applicability
• If unsure, apply for lower/nil deduction certificate u/s197

TDS return purpose and due date

Form 24Q

• Purpose: TDS on salary payments by employers

• Due Dates: 31 Jul, 31 Oct, 31 Jan, 31 May

Form 26Q

• Purpose: TDS on non-salary payments (e.g., interest, rent, commission)

• Due Dates: 31 Jul, 31 Oct, 31 Jan, 31 May

Form 27Q

• Purpose: TDS on payments to non-residents (excluding salary)

• Due Dates: 31 Jul, 31 Oct, 31 Jan, 31 May

Form 26QB

• Purpose: TDS on sale of property exceeding ₹50 lakh (deducted by buyer)

• Due Date: Within 30 days from month-end of deduction

Form 26QC

• Purpose: TDS on rent exceeding ₹50,000/month (by individual/HUF tenant)

• Due Date: Within 30 days from FY-end or vacating property

Form 27EQ

• Purpose: TCS on sale of specified goods/services

• Due Dates: 15 Jul, 15 Oct, 15 Jan, 15 May

FAQs TDS under Section 194J Vs Section 192 & TDS on Director/Consultant Remuneration

Q1. Can a consultant be taxed u/s 192?

Ans.: Yes, if the consultant functions in a manner similar to an employee — i.e., working under supervision, maintaining fixed hours, reporting to management, and receiving salary-like benefits — then Section 192 may apply. The actual nature of the relationship, not the title, determines the applicable section.

Q2: Are all payments to directors subject to TDS, or are there exceptions?

Ans : Yes, most payments to directors are subject to TDS.

• Salary payments to directors are covered u/s192.
• Other payments such as sitting fees, commissions, or consulting fees are covered u/s194J(1)(ba).
• There is no basic exemption limit for TDS on director remuneration u/s194J — TDS is applicable even on small amounts.

Q3: What’s the difference between Section 192 & Section 194J, and when do they apply?

Ans :

• Section 192 applies when there is an employer-employee relationship (typically for executive or full-time directors drawing a salary).
• Section 194J applies when the payment is not salary-based, such as commissions or sitting fees (usually for non-executive or independent directors).
  The section depends entirely on the nature of the relationship and payment.

Q4: Are there any exemptions or special provisions for non-resident directors regarding TDS on their payments?

Ans :Yes. Payments made to non-resident directors are governed by Section 195 of the Income Tax Act. TDS must be deducted at applicable rates, which may vary based on the nature of payment, DTAA provisions, and whether a certificate for lower or nil deduction has been obtained.

Q5: If director remuneration is less than ₹50,000 a year, will Tax Deducted at Source still be deducted?

Ans : Yes. Unlike some other provisions of Section 194J, no threshold limit applies to director remuneration u/s 194J(1)(ba). Tax Deducted at Source at 10% must be deducted, even if the total payment is less than INR 30,000 annually.

Q6: How does Tax Deducted at Source affect directors’ remuneration, and who is responsible for deducting it?

Ans : Tax Deducted at Source reduces the net payment directors receive, as the tax is deducted by the company (payer) before making the payment. The deducted amount is then deposited with the Tax Dept. on behalf of the director.