Provision of TDS on Professional & Technical Services Fee

TDS on Professional & Technical Services charges

According to section 194J related to deduction of TDS in case of charges for technical or professional services. It is applicable to Tax deducted as source (section 194J) on payment of any sum by way of –

• fees for Professional services
• Royalty
• Remuneration or fees or commission paid to directors (excluding salary)
• fees for Technical services
• Non-compete fee

Threshold Limit for each of the above payments except for payment to directors is INR 30k i.e. No Tax deducted as source shall be required to deduct at source if the amount paid or payable during the year do not exceed INR 30k.

Non-Applicability of Threshold Limit under section 194J

However, in case of payment made to directors, Tax deducted as souse has to be deducted irrespective of quantum.

Also read : Extention of TDS/TCS statement filing Date

TDS Rate Under Section 194J

TDS Rate is 10 Percentage, But above TDS rate is taken to be 2 Percentage in below cases:

• Royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films
• Fees for technical services
• in case of a payee engaged only in the business of operation of a call centre

Above implies that Rate of TDS is 10 Percentage in case of fees paid for professional services while it is 2 Percentage in case of fees for technical services. As Rate of TDS is different for technical services & professional services, looking into the difference between the 2 is the need of the hour.

We needed to understand the definitions of both as the provision given in the income Tax Act for purpose of section 194J section –

Central Board of Direct Taxes has issue notification that services of below persons in relation to sports activities as “Professional Services”, namely –

• Event Managers,
• Team Physicians and Physiotherapists,
• Sports Persons,
• Umpires and Referees,
• Anchors
• Coaches and Trainers
• Commentators,
• Sports Columnists and

However, the term “profession”, as such, is a very wide import but the term is defined exhaustively for the purpose of this section.

Meaning of “fees for technical services”

“fees for technical services” means any consideration (including any lump sum consideration) for rendering of any of the below mention services:

• Technical services
• Managerial services
• Provision of services of technical or other personnel
• Consultancy services

Excluding

• Consideration that is chargeable under the head ‘Salaries’ or
• In case of Consideration for any assembly, construction, mining or similar project

So, a broad kind of definition is provided of “fees for technical services” with a very wider ambit.

Meaning of “Professional services”

“Professional services” means carrying on

• interior decoration
• Legal profession
• Advertising
• Medical Profession
• Profession of “film artist”
• Profession of “authorised representatives”
• profession of accountancy
• technical consultancy
• engineering Profession
• Profession of “company secretary”
• architectural profession
• Profession of “information technology”

Meaning of “authorised representatives” and “film artist” has also been provided in the Act.

Read Also : key features of TCS on goods sale section-206c

Conclusion 

• If the services mentioned in the definition of “Professional services” are performed by a professional (an individual) or partnership firms, including LLPs, in their capacity to pursue a profession, it will be regarded a professional service, and tax will be deducted at the 10% rate.
• However, if the same services are provided outside of the scope of a profession, such as by a company, a trust, a society, an artificial juridical person, or other similar organisations, they will fall under the category of “fees for technical services” and will be subject to a beneficial tax deduction at a rate of only 2%.
• So because legislation does not make a clear distinction between the two, the same may be read differently based on the circumstances or situation at hand. For example, services of a Architectures, Doctors, Lawyer, Engineer, Chartered Accountant, etc. are considered to be professional services and liable to higher Tax deducted as souse i.e. 10 Percentage.

• Setting up an enterprise resource planning (ERP) system within a business by an IT provider, on the other hand, will be considered technical services and will be subject to a 2 percent tax deduction as souse.
• The objective of legislators in introducing differential tax rates deducted as souse rates is understandable. Because, in the case of a profession, intellect and professional abilities play a larger role than infrastructure and other overheads. As a result, the profit margin is larger.
• Moreover, Also, whole of the responsibility of the service provided lies on a person only. Hence, they earn a good margin of profit. As a result, a greater rate of tax is deducted as souse.
• In the case of technical services, however, profit is substantially lower due to high company overheads and infrastructure costs, and as a result, a lower percentage of tax deducted as souse is applied.

Read Also : New TDS deduction No cash transactions exceeding 1 Crore -Section 194N