Decoding Section 194JB of Income Tax Act: Current Tax Rates

Section 194JB of the Income Tax Act deals with the tax deducted at source (TDS) on payments made to professionals. It is essential for businesses and professionals to understand this section to ensure compliance and proper financial planning. In this article, we will decode the intricacies of Section 194JB, the current tax rates, and its implications for taxpayers.

What is Section 194JB?

Section 194JB of the Income Tax Act mandates that any person (excluding individuals and Hindu Undivided Families (HUF) who are not subject to tax audit) paying fees for professional services must deduct TDS at a specified rate. This section is particularly relevant for businesses and organizations that engage professionals such as consultants, architects, lawyers, and other service providers.

Current Tax Rates under Section 194JB

The current tax rates for TDS under Section 194JB are as follows:

• 2% TDS on the total payment made to professionals if the amount exceeds ₹30,000 in a financial year.
• 10% TDS for payments made to professionals who do not provide their Permanent Account Number (PAN).

It is important to note that if the payment to a single professional does not exceed ₹30,000 in a financial year, TDS under Section 194JB is not applicable.

Applicability of Section 194JB

Section 194JB applies to various payments made to professionals for their services. These include:

• Resident Individuals
• Consultancy services
• Legal services
• Professional fees
• HUFs, AOPs, and BOIs 

Businesses and organizations must ensure that TDS is deducted at the appropriate rate when making payments to these professionals.

Implications for Taxpayers

For Payers

For businesses and organizations, non-compliance with Section 194JB can result in penalties and interest charges. It is crucial to maintain accurate records of payments made to professionals and ensure that TDS is deducted and deposited with the government on time.

For Payees

For professionals receiving payments, TDS deducted under Section 194JB can be claimed as a credit while filing income tax returns. It is important to provide the payer with your PAN to avoid higher TDS rates and ensure accurate credit of the deducted tax.

Exceptions and Exemptions

While Section 194JB is broadly applicable, there are certain exceptions and exemptions:

• Threshold Limit: TDS is not applicable if the total payment to a professional does not exceed ₹30,000 in a financial year.
• Individuals and HUFs: Individuals and HUFs who are not subject to tax audit are exempt from deducting TDS under this section.
• Payments to Government: Payments made to the government or certain specified entities are exempt from TDS under Section 194JB.

Compliance and Filing Requirements

To comply with Section 194JB, businesses must follow these steps:

1. Deduct TDS: Deduct TDS at the rate of 2% (or 10% if PAN is not provided) when making payments to professionals.
2. Deposit TDS: Deposit the deducted TDS with the government by the 7th of the following month.
3. File TDS Returns: File quarterly TDS returns (Form 26Q) to report the TDS deducted and deposited.

How to Calculate TDS under Section 194JB

Calculating TDS under Section 194JB involves the following steps:

1. Identify the Payment Amount: Determine the total payment made to the professional in a financial year.
2. Apply the Threshold Limit: Check if the payment exceeds ₹30,000. If it does not, TDS is not applicable.
3. Determine the TDS Rate: If the payment exceeds ₹30,000, apply the TDS rate of 2%. If the professional does not provide their PAN, apply the TDS rate of 10%.
4. Calculate the TDS Amount: Multiply the payment amount by the applicable TDS rate to determine the TDS amount.

Example Calculation

Let’s consider an example to illustrate the calculation of TDS under Section 194JB:

• Payment Amount: ₹50,000
• TDS Rate: 2%

TDS Amount: ₹50,000 x 2% = ₹1,000

In this example, the payer must deduct ₹1,000 as TDS and deposit it with the government.

Importance of Compliance

Compliance with Section 194JB is crucial for businesses to avoid penalties and ensure smooth financial operations. Here are a few reasons why compliance is important:

• Avoid Penalties: Non-compliance can result in penalties and interest charges, increasing the financial burden on businesses.
• Accurate Tax Reporting: Proper TDS deduction and reporting ensure accurate tax reporting and prevent discrepancies during tax assessments.
• Professional Relationships: Ensuring timely TDS deduction and deposit helps maintain good relationships with professionals and service providers. 

Takeaways

Understanding Section 194JB of the Income Tax Act is essential for businesses and professionals to ensure compliance and avoid penalties. By following the specified TDS rates and maintaining accurate records, businesses can manage their tax obligations effectively. For more detailed information on Section 194JB and other tax-related queries, OLX offers a range of professional services to help you navigate the complexities of the Income Tax Act.

Frequently Asked Questions 

What is the threshold limit for TDS under Section 194JB?

The threshold limit for TDS under Section 194JB is ₹30,000 in a financial year. If the payment to a single professional does not exceed this amount, TDS is not applicable.

What is the TDS rate under Section 194JB if PAN is not provided?

If the professional does not provide their PAN, the TDS rate under Section 194JB is 10%.

Are individuals and HUFs required to deduct TDS under Section 194JB?

Individuals and HUFs who are not subject to tax audit are exempt from deducting TDS under Section 194JB.

How can professionals claim the TDS deducted under Section 194JB?

Professionals can claim the TDS deducted under Section 194JB as a credit while filing their income tax returns.

What are the compliance requirements for businesses under Section 194JB?

Businesses must deduct TDS at the appropriate rate, deposit the TDS with the government, and file quarterly TDS returns (Form 26Q) to report the TDS deducted and deposited.