The Income Tax Appellate Tribunal (ITAT) in Delhi recently noted the requirement of Tax Deducted at Source (TDS) following Section 194J of the Income Tax Act, 1961. The ITAT bench noted that if the payment for consultancy services, excluding the service tax, does not surpass Rs. 30,000, there is no obligation to deduct TDS.
The case involved a taxpayer who paid consultancy fees of Rs. 33,616 to M/s. Samssara Capital Technology claimed it as a deduction. The Assessing Officer (AO) noted that since TDS was not deducted, the taxpayer could face rejection under Section 40(a)(ia) of the Income Tax Act, 1961. The decision was upheld by the Commissioner of Income Tax (Appeals) [CIT (A)].
Section 194J of the Income Tax Act, 1961 covers the deduction of TDS on professional or technical services. Various professions, including accountants, engineers, interior designers, architects, and individuals in the advertising field come under this provision. This guide explains the requirements specified in Section 194J of the Income Tax Act, of 1961.
According to Section 194J of the Income Tax Act, 1961, any person, excluding individuals or Hindu Undivided Families (HUFs), who makes payments to residents for professional or technical services, must deduct TDS at a rate of 10% or 2%, based on the applicable rate, of the payment paid or credited to the recipient. If the recipient does not furnish their PAN (Permanent Account Number), TDS will be deducted at a rate of 20%.
Individuals or HUFs having aggregate sales or revenue from business or profession surpass the specified threshold limits under Section 44AB of the Income Tax Act, 1961, in the previous financial year when professional or technical service fees are credited or paid, are required to deduct income tax under this section.
Accordingly, any person, excluding individuals or HUFs not falling under Section 44AB of the IT Act, 1961, in the previous financial year, must deduct tax at source when making payments for professional or technical services to residents under Section 194J of the Income Tax Act, 1961.
The ITAT bench clarified that a TDS deduction is only necessary if the amount is more than Rs. 30,000, excluding the service tax component, as per Section 194J of the Income Tax Act, 1961. And it is for estimating this threshold of Rs. 30,000. This clarification is explicitly mentioned in a circular issued by the Central Board of Direct Taxes (CBDT). In the specific case, the consultancy fees, excluding service tax, amounted to precisely Rs. 30,000 and did not exceed the threshold.
Read Also: Delhi ITAT Permits TDS Credit for Assessable Income for Concerned A.Y.
Based on the provisions of Section 194J of the Income Tax Act, 1961, read with the CBDT circular, the ITAT bench, comprising Anubhav Sharma (Judicial member) and M. Balaganesh (Accountant member), concluded that the taxpayer was not required to deduct TDS. Consequently, no disallowance could be made under Section 40(a)(ia) of the Income Tax Act, 1961. As a result, the appeal of the taxpayer was accepted.
| Case Title | Sh. Sunil Ghorawat Vs. ACIT |
| Case No. | ITA No. 6382/Del/2019 |
| Date | 20.12.2023 |
| Assessee by | Dr. Rakesh Gupta, Shri Somil Agarwal, Shri Shrey Jain |
| Revenue by: | Dr Rakesh Gupta, Shri Somil Agarwal, Shri Shrey Jain |
| Delhi ITAT | Read Order |