Deduction of tax at source - Fees for professional or technical services
TDS on service tax on on professional services :After clarification on non application of tds on service tax on rent under section 194I ,doubts has been raised that the same rule should be applicable on 194J or not .To clarify the issue ,A clarification has been sought by Bombay Chamber & commerce & Industry regarding applicability of circular 4/2008 on section 194-J ,and asked the department that whether TDS is to be deducted on service tax collected on the service tax portion collected along with professional services.And it has been replied by the department that scope of clarification issued for section 194-I(RENT) can not be extended for section 194-J(Prof. services).The reply of the department is embedded hereunder.
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Note:above letter is not circular and only a clarification from CBDT.
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.