TDS on Service Charges 2020 – 21 According to Section 194J

Deduction of TDS is a common practice in India and many other companies. It is not only beneficial for the government, but it is also helpful for the taxpayers. When you are deducting the TDS, you are helping the government in ensuring that there is no tax evasion by the service provider. The TDS acts as an advanced tax, and it helps the taxpayer in reducing the tax burden at the end of the financial year. Any professional service or technical service also attracts TDS during the payment of the fee. 

TDS on Service Charges

While availing any service, you are obliged to deduct the TDS and deposit it on behalf of the service provider. There are many different types of services that you can avail, and the TDS amount varies as per the kind of service that you are availing. In this article, you will find all the possible information about the TDS on Service Charges. Let us move along and share all the details with you. 

How much TDS should be deducted on Service Charges?

If the service charges are over Rs 30,000, then you are liable to deduct the TDS and deposit it on the Income Tax Portal. In this section, we have listed the applicable rates for the TDS on Service Charges.

  • When you are engaging in the business of the call centre operations, then the TDS applicable is just 2%.
  • When you are availing any technical service, then the TDS on service charges are capped at 2%.
  • If you are engaged in payment of royalty to a party, then the TDS increases to 10% of the invoice amount.
  • If you are availing any professional service (CA, Business Management, Consultancy, etc.), the TDS is capped at 10%. 

What happens if I do not have a PAN Number?

We have listed the TDS deduction percentage in the section above, and you need to have the PAN number of the service provider to deposit the TDS to their tax account. If in case, the service provider doesn’t share the PAN Details, the amount will be deposited under their name in the suspense account. In such cases, the deductions are shot up to 20% of the invoice amount. 

In case, you do not deduct the TDS as per the applicable rates; you will face twofold consequences. In the first step, the income tax department will defer 30% of your expense during the calculation of Profit & Loss Statement. In addition to this, the government will also penalize you by 1.5% per month on the due amount. However, you can account for the lost 30% expense again after the deposit of the due TDS.

How can I calculate the TDS on Service Charges?

The calculation of the TDS is straightforward. We have already listed the applicable percentages in the section above. To begin with, you can define the type of service that you are availing. Once that is done, you can calculate the TDS on the pre-tax amount. If in case, the invoice doesn’t have a pre-tax and a post-tax amount, you can calculate the TDS on the total invoice amount. Most of the times, the invoice will have the GST amount, but there can certainly be some exceptions.

Are there any exemptions on TDS deductions on Service Charges?

Some of the exemptions in case of TDS deductions on Service Charges are listed below.

  • If the annual payment amount is less than Rs 30,000, then you must not deduct any TDS on the Service charge.
  • If you are dealing with the individual professionals or the HUF professionals, then you may not deduct TDS if the annual turnover is less than Rs 50 Lakhs.
  • If you are dealing with the individual business or the HUF business, then you may not deduct TDS if the annual turnover is less than Rs 1 Crore.

When do I need to deposit the TDS after making the deductions?

TDS should be deducted at the time of payment to the service provider. There are also guidelines suggesting when the TDS should be deposited. If you are depositing the TDS before March, then the deadline is the 7th day before the end of the month. However, if you have deducted the TDS in March, then you can deposit the same by the end of April of the same calendar year. 

Can a service provider claim refund of TDS on Service Charges?

Yes, the service provider can claim a refund of the excess taxes paid during the financial year. The tax paid during the year can be refunded after Form 16 has been issued. The process is relatively simple, and the refunds are usually processed within 60 days of the verification. 

The Best Approach 

The best approach, according to us, is to hire a CA firm or a Tax Lawyer who can do all this on your behalf. Usually, the charges are nominal, and it would help you in ensuring that no errors are made during the submission of the TDS.