SECTION 194J *
DEDUCTION OF TAX AT SOURCE - FEES FOR PROFESSIONAL OR TECHNICAL SERVICES
Payments by advertising agency to artistes - When an advertising agency makes payments for professional services to a film artiste such as an actor, a cameraman, a director, etc., tax will be deducted at the rate of 5 per cent—Circular: No. 714, dated 3-8-1995/Circular : No. 715, dated 8-8-1995.
Clarifications on payments to certain institutions/agencies - The following clarifications are issued:
- Payments to recruitment agencies are in the nature of payments for services rendered, and hence will be subject to TDS under section 194J of the Act, and not under section 194C of the Act.
- Payments made by a company to a share registrar will also similarly be liable to tax deduction at source under section 194J and not under section 194C.
- In respect of payment of commission to external parties for procuring orders for the company’s products, rendering of such services is not covered under section 194C, but may involve payment of fees for professional or technical services, in which case tax may be deductible under section 194J.
- Payments made to a hospital for rendering medical services will attract deduction of tax at source under section 194J.
- Commission received by the advertising agency from the media would require deduction of tax at source under section 194J.
- Routine/normal maintenance contracts which include supply of spares will be covered under section 194C. However, where technical services are rendered, the provisions of section 194J will apply in regard to tax deduction at source.
- Since section 194J refers to ‘any sum paid’, reimbursement of actual expenses cannot be deducted out of the bill amount for the purpose of tax deduction at source.
Circular : No. 715, dated 8-8-1995.
Fees received from abroad - In respect of fees for professional services received from foreign companies or foreign law and accountancy firms, any fees paid through regular banking channels to any chartered accountant, lawyer, advocate or solicitor who is resident in India by non-residents who do not have any agent or business connection or permanent establishment in India may not be subjected to deduction of tax at source under section 194J. However, foreign companies or foreign law and accountancy firms are required to send a quarterly statement, indicating the name and address of the persons to whom the payments are made, to the CBDT—Circular : No. 726, dated 18-10-1995.
Vide Circular No. 766, dated 24-4-1998, it is clarified that as the details of payments made to the Indian residents can easily be verified or collected wherever required, it has been decided to discontinue with immediate effect the requirement of sending the above quarterly statements.
Deduction to be made under one section only - In some cases persons responsible for deducting tax at source are deducting such tax by applying more than one provisions for the same payment. In particular, it has been pointed out that the sums paid for carrying out work of advertising are being subjected to deduction of tax at source under section 194C as payment for work contract as also under section 194J as payments of fees for professional services.
The Board has clarified that each section, regarding TDS under Chapter XVII, deals with a particular kind of payment to the exclusion of all other sections in this Chapter. Thus, payment of any sum shall be liable for deduction of tax only under one section. Therefore, a payment is liable for tax deduction only under one section—Circular : No. 720, dated 30-8-1995.
Deduction of Tax at source on Service Tax - The payments made under section 194-I differ significantly from payment made under section 194J in the way that in the case of 194-I TDS has to be deducted on any income paid as rent. However, in the case of section 194J TDS has to be deducted on any sum paid as professional and technical fees. The Board had decided to exclude TDS on service tax component on rental payment because it was construed that service tax payment cannot be regarded as income of the landlord. Since section 194J covers any sum paid, therefore the board has decided not to extend the cope of Circular No. 4/2008, dated April 28, 2008 to such payment under section 194J - Letter F.No. 275/73/2007-IT(B), dated 30-6-2008.
Notified professional services u/s 194J, Explanation ( a) - In exercise of the powers conferred by clause (a) of the Explanation to section 194J of the Income-tax Act, 1961, Central Board of Direct Taxes hereby notifies the services rendered by following persons in relation to the sports activities as "Professional Services" for the purpose of the said section, namely :—
u Sports Persons,
u Umpires and Referees,
u Coaches and Trainers,
u Team Physicians and Physiotherapists,
u Event Managers,
u Anchors and
u Sports Columnists.
2. This notification shall come into force with effect from the date of its publication in the Official Gazette - Notification No. S.O. 2085(E), dated 21-8-2008.
Applicability of provisions under section 194J, in the case of transactions by the Third Party Administrators (TPAs) with hospitals etc. - The services rendered by hospitals to various patients are primarily medical services and, therefore, provisions of section 194J are applicable on payments made by TPAs to hospitals etc. Further for invoking provisions of section 194J, there is no stipulation that the professional services have to be necessarily rendered to the person who makes payment to hospital. Therefore, TPAs who are making payment on behalf of insurance companies to hospitals for settlement of medical/insurance claims etc. under various schemes including cashless schemes are liable to deduct tax at source under section 194J on all such payments to hospitals etc.
In view of above, all such past transactions between TPAs and hospitals fall within provisions of section 194J and consequence of failure to deduct tax or after deducting tax failure to pay on all such transactions would make the deductor (TPAs) deemed to be an assessee in default in respect of such tax and also liable for charging of interest under section 201(1A) and penalty under section 271C.
Considering the facts and circumstances of the class of cases of TPAs and insurance companies, the Board has decided that no proceedings under section 201 may be initiated after the expiry of six years from the end of financial year in which such payment have been made without deducting tax at source etc. by the TPAs. The Board is also of the view that tax demand arising out of section 201(1) in situations arising above, may not be enforced if the deductor (TPA) satisfies the officer in charge of TDS that the relevant taxes have been paid by the deductee-assessee (hospitals etc.). A certificate from the auditor of the deductee-assessee stating that the tax and interest due from deductee-assessee has been paid for the assessment year concerned would be sufficient compliance for the above purpose. However, this will not alter the liability to charge interest under section 201(1A) till payment of taxes by the deductee-assessee or liability for penalty under section 271C, as the case may be - Circular : No. 8/2009, dated 24-11-2009. [Circular was partly set aside by the Bombay High Court in Dedicated Health Care Services TPA (India) (P.) Ltd. v. Asstt. CIT  191 Taxman 1].