Meaning

Every person other than an individual or HUF, who is responsible for paying to a resident any sum by way of -

• Fees for professional services
• Fees for technical services
• any remuneration or fees or commission, other than those on which tax is deductible u/s 192, to a director of a company
• royalty
• non - compete fees referred to in section 28(va)

Professional Services

Services provided by a person for carrying on medical, legal, architectural or engineering professions. It also includes accountancy, advertising, interior decoration, technical consultancy or any other profession notified by CBDT Board u/s 44AA. CBDT has notified the profession of a film artist, company secretary, authorized representatives u/s 44AA. CBDT u/s 194J has futher notified sportspersons, commentators, event managers, anchors, umpires, referees, physiotherapists, coaches, trainers, team physicians, sports columists.

Technical Services

Techical services includes any services provided by a human and not machine or robots. It comprises of managerial, technical and consultancy services.

Royalty

Royalty means payment made for:

• Transfer of rights or usage of an invention, model, design, trademark, patent etc.
• Providing any information relating to using an invention, patent, formulae, etc.
• Use of patents, inventions, designs, etc.
• Transfer of rights related to scientific findings, litereary works, film or video tapes or radio broad casting.

Non-Compete Fees

Non-Compete Fees imply the payment made in cash or kind in return for an agreement that binds them from sharing any license, patent, trademark, franchise, know-how, commercial or business rights, or information likely to be utilised elsewhere for processing, manufacture, or any other provisional service.

Time of Deduction

TDS shall be deducted at the earlier of the following dates:

• at the time of credit of such sum in the account of the payee , or
• at the time of payment thereof in cash or by issue of cheque or draft or any other mode

Threshold Limit

TDS shall be deducted if payment is greater than Rs.30,000 during the year. This limit is availiable for each item independently.

Firm X pays Rs.15,000 as fees towards technical services and Rs. 25000 towards professional services. Then no TDS shall be deductible since limit of rs. 30,000 is separate for each category.

There is no limit for TDS on Commission or Remuneration or fees given to the company's director.

Rate of TDS Deduction

TDS at Lower Rate

The assessee receiving the payment can apply for TDS at lower rate u/s 197 by filing Form 13 to the assessing officer and sending it to the assessing officer.

Persons Liable To Deduct Tax

Every persons who makes a payment in the nature of fees for professional or technical services is liable to deduct TDS other than the following persons:

If the turnover of the business being carried out by an individual or HUF does not exceed Rs. 1 Crore during the previous financial year.
If the turnover from profession carried out by an individual or HUF does not exceed Rs. 50 lakhs during the previous financial year.

Consequences of Non deduction or late deduction of TDS

30% of the expenditure shall be disallowed however such disallowed expenditure shall be re-allowed in the year in which the TDS is paid to the government.

Interest for Non deduction or late deduction of TDS:

In case of Non- deduction:

Interest shall be payable @ 1% per month / part of the month from the date on which such tax was required to be deducted upto the date on which tax is actually deducted.

In case tax is deducted but not paid to the government

Interest shall be payable @ 1.5% per month / part of the month from the date on which such tax was deducted upto the date on which tax is actually deposited with the government.