Section 194J of the Income Tax Act, dealing with fees for professional or technical services, was divided into two sub-sections—194J(a) and 194J(b)—effective from August 7, 2020. Section 194JB specifically governs the provisions related to Tax Deducted at Source (TDS) on payments made for professional services. Under this section, the payer is required to deduct TDS at the time of crediting the amount to the payee’s account. The applicable TDS rates vary depending on whether the payee possesses a valid PAN. Understanding the provisions of Section 194JB is essential for professionals to ensure compliance and effective financial planning. This article explores the section’s scope, applicability, exemptions, TDS rates, and more. For seamless TDS return filing, consider expert support from IndiaFilings.
What is Section 194JB of the Income Tax Act?
Section 194JB of the Income Tax Act mandates that any person—excluding individuals and Hindu Undivided Families (HUFs) not subject to a tax audit—must deduct Tax Deducted at Source (TDS) when making payments for professional services. This provision is crucial for businesses and organizations engaging professionals such as consultants, lawyers, architects, medical writers, and similar service providers. TDS must be deducted at the time of credit or payment, whichever is earlier, at a specified rate depending on the PAN status of the payee.
Importance of Section 194JB of the Income Tax Act
Section 194JB is a key provision aimed at strengthening the tax compliance framework related to professional payments. Its importance can be highlighted through the following points:
Prevents Tax Evasion
By mandating TDS at the time of payment, Section 194JB ensures that tax is collected in advance, reducing the scope for underreporting income.Promotes Accurate Tax Reporting
Proper deduction and reporting of TDS help streamline tax assessments and reduce discrepancies between reported income and actual payments.Reduces Risk of Penalties
Timely compliance with TDS obligations under this section protects businesses from interest, penalties, and legal consequences.Ensures Timely Government Revenue
This provision supports the government’s revenue collection process by ensuring regular tax inflows through advance deductions.Enhances Financial Transparency
TDS deductions create a traceable payment trail, increasing accountability and trust in professional transactions.Maintains Positive Professional Relationships
Timely and accurate tax compliance improves credibility and fosters long-term relationships between payers and service providers.Applies Across Sectors
Section 194JB applies to a wide range of professionals, ensuring tax discipline across industries and sectors.
TDS Rates Under Section 194JB
Under Section 194JB, the TDS rates for professional payments are as follows:
2% TDS for PAN Holders
If the payment to a professional exceeds ₹30,000 in a financial year and the payee has a valid PAN, TDS must be deducted at 2%.10% TDS for Non-PAN Holders
If the professional fails to provide a PAN, the TDS rate increases to 10%, encouraging PAN compliance.
Applicability of Section 194JB
Section 194JB applies to any person or entity responsible for paying fees for professional services, except individuals or HUFs not covered under tax audit. It is applicable to:
Resident Individuals (subject to audit)
Hindu Undivided Families (subject to audit)
Associations of Persons (AOPs)
Bodies of Individuals (BOIs)
Businesses or organizations making payments to professionals (legal, marketing, consultancy, technical, etc.).
Exemptions Under Section 194JB
While Section 194JB mandates TDS on professional payments, certain exceptions apply:
Threshold Exemption
No TDS is required if the aggregate annual payment to a professional does not exceed ₹30,000.Non-Audited Individuals & HUFs
Individuals and HUFs who are not subject to tax audits are exempt from TDS obligations under this section.Payments to Government Entities
Payments made to government departments or certain notified entities are not subject to TDS under Section 194JB.
Responsibilities Under Section 194JB
For Payers
Deduct TDS at 2% (or 10% if no PAN) at the time of payment or credit.
Deposit the deducted amount to the government by the 7th of the following month.
File quarterly TDS returns using Form 26Q.
For Payees (Professionals)
Provide a valid PAN to the payer to avoid a higher TDS rate.
Claim the deducted TDS when filing their income tax return to adjust against final tax liability
TDS Compliance Process for Payers
To ensure full compliance with Section 194JB, payers should:
Deduct TDS
2% if PAN is provided
10% if PAN is not provided
Deposit TDS
Must be deposited to the Central Government by the 7th of the next month.
File TDS Returns
File Form 26Q quarterly to report TDS details accurately and avoid penalties.
How to Calculate TDS Under Section 194JB
Step-by-Step Calculation Process:
Identify Total Payment: Sum of all payments made to the professional in the financial year.
Check ₹30,000 Threshold: If the total payment does not exceed ₹30,000, TDS is not applicable.
Determine Applicable TDS Rate:
2% if PAN is provided
10% if PAN is not provided
Compute TDS Amount: Multiply the payment by the applicable rate.
Examples:
Example 1:
Payment to a PAN-verified accountant: ₹60,000
TDS = ₹60,000 × 2% = ₹1,200Example 2:
Payment to a writer without PAN: ₹35,000
TDS = ₹35,000 × 10% = ₹3,500.
Applicable ITR Form for Professionals Under Section 194JB
Professionals receiving payments subject to TDS under Section 194JB must file their income tax returns using ITR-3. This form is applicable for:
Individuals and HUFs earning income from a business or profession.
About the Author
Rohit
Rohit is an expert legal writer known for translating complex legal jargon into clear, actionable insights. His content equips entrepreneurs with the knowledge they need to navigate legal responsibilities confidently, laying a solid, compliant foundation for building and scaling their businesses.
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