TDS Deduction Confusion: Should It Cover Both Professional Fees and Travel Expenses?

We have hired a consultant, and we pay him professional fees and traveling expenses on a monthly basis. My question is, on which amount should we deduct TDS? Professional fees + traveling expenses, or only professional fees? And why? Please clarify.

TDS Deduction on Consultancy Payments

According to Income Tax norms, if we are making a payment to a person for their services under consultancy equivalent to or above Rs. 30,000/- in a single payment or in part payments in a year, we have to deduct TDS at 10% under section 194J. So, you have to deduct TDS at 10% for your consultant.

As per Income Tax norms, after deduction of TDS, we have to pay to the government by the 7th of the following month. Afterwards, we have to furnish quarterly e-Returns to the Income Tax department. Then, we have to issue Form 16A either quarterly or on a yearly basis to the respective consultant.

As far as traveling expenses are concerned, are you reimbursing his traveling expenses? If you are, TDS will not be attracted. Even if you are paying other than consultancy charges, TDS will not be attracted. Hence, there is no need to deduct TDS.

If you are paying traveling expenses as part of consultancy charges, TDS should be deducted as per Income Tax norms as mentioned above.

I wish you all the best.

Regards

TDS Deduction on Professional Fees and Expenses

The TDS is deducted at 10% from professional fees. You should ask him to raise two separate bills—one for professional fees (₹75,000) and the other for traveling expenses (₹15,000).

In this case, you need to deduct tax on ₹75,000 and not on ₹15,000. However, if he is raising only one bill, you need to deduct tax on the gross amount, i.e., ₹90,000.

I hope this information is helpful.

Thanks & Regards,
Avika

Thank you for your suggestion. However, I have a question: why can't we deduct tax on Rs. 15,000/-, considering that this amount is also being paid to him? Suppose he raises two bills every month, which simply indicates that he is trying to save tax on this amount.

Regards,
Rajendra V.

There is no problem if you wish to deduct tax on the full amount. Raising two bills is a way of tax planning. It is your call to deduct tax on the total amount of a single bill.

Thanks & Regards,
Avika

I don't wish to deduct tax. I am in a dilemma about what I have to do as per the rules. What is the correct process according to the rules? Please guide.

Regards,
Rajendra V.

The correct process is to deduct tax on the total amount of the bill if it's a single bill. Furthermore, if he is raising two separate bills, you need to deduct tax on the amount for professional fees only.

Thanks & Regards,
Avika

Well done, Avika! I read your response. You explained the scenario with data in the right perspective. The bill submitted by the trainer is inclusive of the taxes. Hence, I would offer the trainer a direct amount of 15k rather than being taxed for 90k.

Hope this helps, Rajendra.

Regards,
(Cite Contribution)

Kudos to you for patiently explaining.

Hi Rajendra, as per the IT rules, TDS is applied to Professional Fees and not reimbursements. You have two options:

a) If it's a single bill, you will have to deduct the TDS on the full amount (90,000).

b) If the contractor wants to save this amount, or you want your contractor to save this amount, you can ask him to raise two separate bills and deduct the TDS on Professional Charges only (75,000) and not on reimbursements (15,000).

It is important to note that the contractor will have his PAN, and he will lose the deducted amount of Rs. 15,000 if he has a tax liability. In case he doesn't have a tax liability, he can claim a full refund in his IT returns.

I will also say the same as what Avika has answered. The only thing I would like to add is if service tax is charged by the professional service provider on their bill for reimbursement, then you have to deduct TDS on the reimbursement bill as well.

Clarification on TDS Liability

TDS liability arises only on income, not on expenses that are reimbursed. Suppose I incurred $5000 towards expenses and someone reimburses me that amount. In that case, what do I gain and what do I lose? Nothing. Why does income tax liability arise on that amount?

Therefore, TDS is always considered on income and not on the reimbursement of expenses.

Regards,
Mitesh Pathak

Whether the bill is split or not, TDS has to be made on out-of-pocket expenses like traveling, etc. If a person raises two separate bills—say, Rs. 50,000/- towards professional fees and another bill for Rs. 10,000/- towards out-of-pocket expenses—TDS at 10% needs to be deducted on Rs. 60,000/- if a PAN number is furnished. If a PAN number is not furnished, TDS has to be deducted at 20% on Rs. 60,000/-. Section 194J clearly states that TDS has to be deducted on any sum paid towards services covered under this section (194J).

Regards,
Ravindra

Accounting Entry for Consultant Expenses

It is not necessary to have two separate bills; it is all about how you make the accounting entry. If you take the whole amount in Professional Consulting, then you have to deduct TDS on the entire amount. Basically, this entry is incorrect because it comprises two expenses: one for professional consulting and the second for traveling expenses. Therefore, you have to make one entry for consulting expenses and a second entry for traveling expenses. It doesn't matter if the consultant has issued one bill; the important thing is that both expenses need to be shown separately on the bill. Service charges should only be considered on professional fees and not on the whole amount.

Regards,
Mitesh Pathak

Can I know what is the percentage of deduction of tax from professional fees? Will TDS rates change for every financial year?

Can I know what the percentage of income tax deduction from professional fees is? Will there be any changes in rates for this financial year?

TDS Applicability on Consultant Payments

TDS is applicable on the gross amount paid to the consultant. Please read Section 194J carefully. If the traveling expenses paid to the consultant are a fixed sum every month or quarter, etc., then TDS has to be deducted on the traveling expenses paid to him also. If it is paid as actual reimbursement, then TDS deduction is not applicable.

Actual Reimbursement Explained

Actual reimbursement means the consultant should have actually incurred the expenses. Supporting bills and vouchers have to be produced. The company should have paid only the actual expenses incurred and claimed by the consultant. Then only there is no need to deduct TDS. Otherwise, TDS is very much applicable on traveling expenses paid to the consultant also (i.e., Rs. 75,000/- plus 15,000/-).

Regards,
Ravindra

Thanks to all for participating in this discussion. I am interested in knowing if a professional is receiving 90,000 per month as professional fees, how much total tax will they have to pay, including service and other taxes, or how much amount will they receive in hand.

I am charging my client accounting fees of Rs. 40,000/-. I receive an amount of Rs. 10,000/- quarterly for 4 times. Will TDS be deducted or not?

Thank you.

In April, a professional fees bill of INR 15,000 was received, and another professional fees bill was received after December. What should I do for TDS deduction?

In April, a professional fees bill of 15,000/- was received, and after December, a professional fees bill of 25,000/- was received. What should I do for TDS deduction? How should I show it in the TDS return? The total amount is 35,000/- with TDS deducted. However, what should be done about the 15,000/- from April and the interest on that amount? Please advise.

I have Testing Services Bill. Basic Amount is 37500, Service Tax is 5250, Total Bill Amount is 42750. On which amount should we deduct 10% TDS - on the Basic amount or the Total amount?

Hi, I have a question. I hired a Business Development Consultant before starting my ABC LLP. I paid him ₹50,000 in July without deducting TDS and ₹45,000 in September. I then formed an LLP for the business at the end of September. My PAN card was received in December, and I applied for TAN on the 18th of December.

Now, the consultant is asking for an additional ₹50,000. Should I deduct TDS on the total amount (₹50,000 + ₹45,000 + ₹50,000) at 10% and pay him? From what I understand, how can I deduct TDS without having a TAN number? Even if I deduct it, will I receive my TAN number before the 6th of January to pay TDS?

I was informed that the amounts (₹50,000 + ₹45,000) paid from my personal account to him for business development can be claimed as pre-incorporation expenses. Is this true? Please comment on this as well.

What should I do?

Please let me know if the TDS is applicable only for an individual consultant or if it is also applicable for a business consultant (both B2C and B2B).

In our case, there is a consultant working for our company, and they are not an individual; they are part of an organization or are business people.

Answer for Devangindia: If the payment to BDC is made by you individually before the incorporation of ABC LLP and the same expense is to be reimbursed by ABC LLP to you, then NO TDS will be applicable. After the incorporation of ABC LLP, whatever payment is to be made to BDC will attract TDS. In your case, you should deduct TDS on the amount of Rs. 95,000 (Rs. 45,000 in September + Rs. 50,000 in December) when you make a payment of Rs. 50,000/- in December. As per the Income Tax Act, failure to deduct TDS will attract interest at 12% per annum on the TDS amount. So, in your case, you need to pay interest of 1% per month on the default amount of TDS Rs. 4,500/- until the month of deposition of such tax. The due date for TDS deposit is within the 7th of the next month. In the case of March, TDS should be deposited by 30th April. In your case, you need to file a return for the September quarterly return onwards. The penalty for the failure of submitting Quarterly Return is Rs. 200/- per day of default, maximum up to the amount of TDS for the concerned period.

Time Limit of Quarterly Return Submission:
- Apr-Jun Quarter: up to 15th Jul
- Jul-Sep Quarter: up to 15th Oct
- Oct-Dec Quarter: up to 15th Jan
- Jan-Mar Quarter: up to 15th May

Answer for Pankaj: TDS is to be charged on the amount excluding Service Tax (vide CBDT Circular No.4/2008 dated 28-04-2008). So you need to charge TDS on Rs. 37,500/-

TDS is to be charged on the amount excluding Service Tax as per CBDT Circular No. 4/2008 dated 28-04-2008. Therefore, you need to charge TDS on Rs. 37,500.

Travelling expenses do not attract TDS; hence, there is no need to deduct TDS. However, payment of professional fees attracts TDS subject to the marginal limit of Rs. 30,000. The rate of TDS is 10% for all categories. Learn more about TDS on professional tax here.

[Section 194 J TDS on Fees for professional or technical services - Taxin](http://taxin.in/income-tax/tds/section/section-194-j-fees-for-professional-or-technical-services-2/)