Section 194J of ITA, 1961 : Section 194J: Fees For Professional Or Technical Services

Explanation using Example

Imagine a software development company, XYZ Pvt. Ltd., which has contracted a freelance developer, Mr. John, to create a specialized piece of software. The contract states that Mr. John will be paid a fee of ₹50,000 for his technical services.

As per Section 194J of the Income-tax Act, 1961, XYZ Pvt. Ltd. is required to deduct tax at source (TDS) at the rate of 10% from the payment to Mr. John because the payment exceeds the ₹30,000 threshold. Therefore, when XYZ Pvt. Ltd. makes the payment, they must credit ₹45,000 to Mr. John's account and remit ₹5,000 to the government as TDS.

This TDS is then accounted for in Mr. John's income tax return, and he can claim credit for the ₹5,000 that has already been paid on his behalf.