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Contract vs Professional Services

Ankit Satia (Service - Manager in Internal Audit Dept) (235 Points)

22 December 2010

What is a definition of words "Contract" & "Professional Services" in light of provisions relating to TDS under Income Tax Act,1961.

How to draw difference between "Contract" & "Professional Services" when a services rendered by person can be prima facie covered under "contract" & "professional services" both.

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8 Replies

Rahul (CA Practice ) (1818 Points)
Replied 22 December 2010

Hi Ankit

There is a very thin line of distinction between TDS u/s 194C and 194J. "Contract" and " Professionals " are appropriately defined under their relevant section therfore i will not discuss their definition.

Only one Golden Rule Applies

If the contract involves intellectual application ( Lab Testing, Auditing etc ) section 194J will be applicable and if it involves human efforts ( Transport, Car hire etc ) section 194C will be applicable.

Any exception to the above rule is welcome.

Rahul Srivastava

ISHTYAK ALI KHAN (AUDIT ASSISTANT) (21 Points)
Replied 28 August 2013

i agree with mr rahul

Prajot P. Volvoikar (Article Assistant) (46 Points)
Replied 23 November 2013

If the person says 'Yes, i know how to do the work. I will tell you how to do it, you do it that way' then it is professional fees.

If the person says 'Yes, i know how to do the work. I will do it for you' then it is a contract.

PRAJOT

Prakash Joshi (63 Points)
Replied 02 December 2022

Suppose I take assignment for production of TV/video ads from a company makes garment/fashion accessories for an ad for kids wear which includes and for which I have to hire models, makeup artists, field staff, transport, accommodation, food and other items and all the payments are made to them by me personallly and I deduct the TDS wherever applicable on my account.

I issue an invoice for total cost adding my mark up to the co. With GST @ 18%.

What rate of TDS should the company deduct from my bill. It's not intellectual work like lab testing, auditing etc.as one gentleman has quoted. I would like the co to deduct 2%.

Can anyone reply.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160327 Points)
Replied 02 December 2022

Circular No. 4/2016 dated 29.02.2016 deals with TDS on payments by broadcasters or television channels to production houses for production of content or programme for telecasting.

It has been clarified in the Circular that in a situation where the content/programme is produced as per the specifications provided by the broadcaster/telecaster and the copyright of the content/ programme also gets transferred to the telecaster/broadcaster, such contract is covered by the definition of the term ‘work’ in section 194C of the Income-tax Act and, therefore, subject to TDS under section 194C at 2%, rather than at a rate of 10% under section 194J as payment for ‘professional or technical services’.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160327 Points)
Replied 02 December 2022

In case of content made by the service provider, as per his/her own idea, sec. 194J will apply...

Prakash Joshi (63 Points)
Replied 03 December 2022

How should I bill it. If I charge the entire fee as a Professional fee then, they say it's a skilled job contract involves physical work. So, they insist to deduct 10%TDS. Because more than 50% of the work involve either professional or skilled job like, fee of Models, photographers,videgraphers, make up man etc. only few things like food, taxi hire, accommodation for staying of above professionals hired What should I mention on the bill. So we charged the entire amount as Professional fee and made the invoice for Prof fee.

Thanks

PC Joshi