Circular No. 714

1118. Clarification regarding applicability of section 194C/194J in case of advertising agency

What this is

Circular No. 714 was issued by the Central Board of Direct Taxes on 3 August 1995. Its subject is 1118. Clarification regarding applicability of section 194C/194J in case of advertising agency.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Settles the rate question thrown up by Explanation III to section 194C, inserted by the Finance Act, 1995, which brought advertising and broadcasting and telecasting, including production of programmes for them, within 'work'. Advertising, whether in print or electronic media, newspapers, periodicals, radio or television, attracts deduction at 1 per cent, and that 1 per cent covers payment for production of programmes for broadcasting and telecasting where those programmes are to be used in the advertising. All other broadcasting and telecasting work not involving advertising is at 2 per cent. Separately, where an advertising agency pays a film artiste such as an actor, cameraman or director for professional services, deduction is under section 194J at 5 per cent.

Why it was issued

Representations were received on the scope and meaning of 'advertising' in section 194C(1), because the choice between 1 per cent and 2 per cent turned on it.

Who it reaches

Advertising agencies making payments to media and producers
Broadcasters and telecasters and programme producers
Film artistes, cameramen and directors receiving professional fees
Deductors choosing between section 194C and section 194J

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.44AA	s.58, s.62
s.194C	s.393, s.402
s.194J	s.393, s.402

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1118. Clarification regarding applicability of section 194C/194J in case of advertising agency
1. Finance Act, 1995 has amended section 194C dealing with tax deduction at source for carrying out any work by introducing Explanation III therein. By this Explanation, the expression "work" has been defined, inter alia, to also include—
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting and telecasting.
According to the amended provisions, tax is to be deducted at the rate of 1 per cent in cases of advertising and at the rate of 2 per cent in the other cases, of the sum as income-tax on income comprised therein.
2. The Act has also introduced section 194J and this section deals with deduction of tax at source from ‘fees for professional or technical services’. This section prescribes deduction of tax at source at a rate of 5 per cent of the sum as income-tax on income comprised therein. The term "Professional Services" has been defined in the Explanation to this section to mean services rendered by a person in the course of carrying on legal, medical, engineering or the profession of accountancy or technical consultancy or interior decoration or advertising or such activity as is notified by the Board for the purpose of section 44AA or of this section.
3. Representations have been received regarding the scope and meaning of the term "advertising" used in section 194C(1), where tax deduction at source has to be made at the rate of 1 per cent as against rate of 2 per cent in the other cases. It is clarified that advertising may be in print or electronic media, i.e., in newspapers, periodicals, radio, television, etc. In such cases the tax will be deducted at the rate of 1 per cent of the payment made for advertising including production of programmes for such broadcasting and telecasting to be used in such advertising. In all other cases of work of broadcasting and telecasting including production of programmes for such broadcasting and telecasting, where advertising is not involved, tax will be deducted at the rate of 2 per cent of the sum.
4. It is also clarified that the tax will be deducted at source under section 194J from payments made for professional services. Thus, when an advertising agency makes payments for professional services to a film artiste such as an actor, a cameraman, a director, etc., tax will be deducted at the rate of 5 per cent.
Circular : No. 714, dated 3-8-1995.

What to watch

The 1 per cent rate depends on the programme being produced for use in the advertising; other programme production stays at 2 per cent.
Payments to film artistes are not a section 194C question at all; they go under section 194J.
'Professional services' in the Explanation to section 194J is a defined list linked to section 44AA and to what the Board notifies.
The rates given are those introduced by the Finance Act, 1995, and the section 194C and 194J rates have since been changed.

Where you meet it

On a TDS survey or a section 201 order against an advertising agency for deducting at 1 per cent where the Department says 2 per cent or section 194J applied.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 92 — Section 120 (1) and (2) of the Income-tax Act, 1961 - Income-tax authorities - Jurisdiction of – Amendment in Notificati 8 December 2009
Notification No. 06 — A notification under section 44AA of the Income-tax Act, 1961 8 January 2004
Notification No. 30 — In Schedule-I, to the said notification for serial numbers 67, 74, 207, 208, 209, 210 and 211, and the entries relating 4 February 2003
Notification: 21 Date of Issue : 4/2/2002 — Amendment of the Income-tax Rules under section 44AA of the Income-tax Act, 1961 4 February 2002
Notification No. 385E- — Profession of information technology notified under section 44AA 4 May 2001
Circular No. 3 — 414. Filing of Audit Report under sections 44AD(6), 44AE(7) and 44AF(5) of the Income-tax Act, 1961, for the assessment 9 February 2001

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A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.