What is Section 194JB?

Section 194JB of the Income Tax Act mandates the deduction of Tax Deducted at Source (TDS) on payments made for professional services. Specifically, it applies to any person, excluding individuals and Hindu Undivided Families (HUF) not subject to a tax audit, who is making payments for such services.

This provision plays a crucial role in the Indian tax system, ensuring that income earned by professionals is taxed at the source, thus streamlining tax collection and compliance.

Understanding Section 194JB in Detail

Section 194JB falls under Section 194J of the Income Tax Act, which broadly covers TDS on fees for professional or technical services. While Section 194J covers both, 194JB specifically clarifies the applicability to professional services with a specific focus on the deductor's category.

Who is Required to Deduct TDS (The Deductor)?

Under Section 194JB, the responsibility for deducting TDS lies with specific entities. This includes:

Companies: Both private and public limited companies.
Partnership Firms and LLPs: All types of registered firms and Limited Liability Partnerships.
Trusts and Societies: Registered trusts, cooperative societies, and other associations of persons (AOPs) or bodies of individuals (BOIs).
Government Entities: Central and state government departments, public sector undertakings.
Individuals and HUFs subject to Tax Audit: If an individual or HUF's turnover or gross receipts exceed the prescribed limit for a tax audit under Section 44AB of the Income Tax Act, they are also liable to deduct TDS under this section.

Crucially, individuals and Hindu Undivided Families (HUF) who are not subject to a tax audit are exempt from this requirement.

What Payments are Covered?

The section applies to "fees for professional services." The Income Tax Act defines "profession" broadly, encompassing various fields. Examples include:

Legal: Lawyers, legal consultants.
Medical: Doctors, surgeons, medical practitioners.
Engineering and Architecture: Engineers, architects.
Accountancy: Chartered accountants, cost accountants.
Technical Consultancy: IT consultants, management consultants.
Interior Decoration: Interior designers.
Advertising: Agencies providing advertising services.
Film Artists: Actors, directors, music directors, editors, etc.
Sports Persons & Coaches: Athletes, coaches, sports agents.
Anchors & Commentators: Individuals engaged in media presentations.
Company Secretaries: Professionals providing secretarial services.

TDS Rate and Threshold

For fees for professional services under Section 194JB, the general TDS rate is 10%.

However, TDS is only required to be deducted if the aggregate amount of such payments to a professional in a financial year exceeds a specific threshold. As per current provisions, this threshold is ₹30,000. If the total payments to a professional during the financial year remain below this limit, no TDS needs to be deducted.

When to Deduct TDS?

TDS must be deducted at the earlier of the following two events:

At the time of credit of the amount to the payee's account (even if it's a "suspense account").
At the time of actual payment of the amount (cash, cheque, draft, or any other mode).

Compliance and Consequences

Deducting TDS is just the first step. Proper compliance involves several other obligations:

Deposit of TDS: The deducted TDS must be deposited with the government within the stipulated due dates.
Filing TDS Returns: Periodical TDS returns (Form 26Q for non-salary payments) must be filed, providing details of the deductors, deductees, and the amounts involved.
Issuance of TDS Certificates: Form 16A must be issued to the deductee, providing proof of TDS deduction, which they can use to claim credit when filing their income tax return.

Penalties for Non-Compliance

Failure to comply with Section 194JB provisions can lead to significant consequences, including:

Interest: Interest may be levied on delayed deduction or deposit of TDS.
Penalties: Penalties can be imposed for failure to deduct TDS, failure to deposit TDS, or failure to file TDS returns.
Disallowance of Expenditure: In some cases, the expenditure on which TDS was not deducted or deposited may be disallowed when computing the deductor's own income, increasing their tax liability.

Practical Example

Consider "Alpha Solutions Pvt. Ltd.," a company that engages "Mr. R. Kumar," a freelance IT consultant, for a project.

If Alpha Solutions Pvt. Ltd. makes a payment of ₹25,000 to Mr. R. Kumar during the financial year, no TDS under 194JB is required as it's below the ₹30,000 threshold.
However, if Alpha Solutions Pvt. Ltd. makes a series of payments totaling ₹50,000 to Mr. R. Kumar over the financial year, they must deduct TDS at 10% (i.e., ₹5,000) from the payments once the threshold is crossed and deposit it with the government. They must also issue Form 16A to Mr. R. Kumar.

This ensures that the tax on Mr. R. Kumar's professional income is collected at the source by Alpha Solutions Pvt. Ltd. and remitted to the government.

For more detailed information, you can refer to the Income Tax Department's official website.