Circular No. 726 — Section 194J l Fees for Professional or Technical Services

What this is

Circular No. 726 was issued by the Central Board of Direct Taxes on 18 October 1995. Its subject is Section 194J l Fees for Professional or Technical Services.

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

Spares foreign payers with no presence in India the section 194J machinery. Indian law and accountancy firms represented that foreign companies and foreign law and accountancy firms paying them professional fees could not comply with deduction and payment under section 194J in the prescribed manner and time, having no agent, business connection or permanent establishment in India. Weighing those practical difficulties, the Board says that fees paid through regular banking channels to a chartered accountant, lawyer, advocate or solicitor resident in India, by non-residents who have no agent, business connection or permanent establishment in India, may not be subjected to deduction under section 194J. In place of deduction, such foreign companies and firms are to send a quarterly statement giving the name and address of each payee to the Deputy Secretary, Foreign Tax Division, Central Board of Direct Taxes, New Delhi, the first statement being for the quarter ending 31 December 1995.

Why it was issued

Representations from Indian law and accountancy firms said their foreign clients found compliance with section 194J impossible in the absence of any presence in India.

Who it reaches

Indian chartered accountants, lawyers, advocates and solicitors billing foreign clients
Foreign companies and foreign law and accountancy firms without a presence in India
Non-residents who do have an agent, business connection or permanent establishment here, who are outside this relief

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.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.

SECTION 194J l FEES FOR PROFESSIONAL OR TECHNICAL SERVICES
1153. Clarification regarding payments to persons resident in India by foreign companies or foreign law firms that have no presence in India
1. Representations have been received from some law and accountancy firms that are receiving fees for professional services from foreign companies or foreign law and accountancy firms saying that the latter find it very difficult to comply with the requirement of tax deduction at source under section 194J of the Income-tax Act and its payment to Central Government in the prescribed manner and within the prescribed time in the absence of any agent or business connection or permanent establishment in India. They have, therefore, requested that the provisions of section 194J of the Act may not be made applicable to the fees for professional services paid by foreign companies or foreign law and accountancy firms to persons resident in India.
2. After carefully considering the practical difficulties involved, it is felt that, any fees paid through regular banking channels to any chartered accountant, lawyer, advocate or solicitor who is resident in India by the non-residents who do not have any agent or business connection or permanent establishment in India may not be subject to the provisions of tax deduction at source under section 194J of the Income-tax Act.
3. However, foreign companies or foreign law and accountancy firms are required to send a quarterly statement, indicating the name and address of the person to whom the payments are made, to the Deputy Secretary, Foreign Tax Division, CBDT, Department of Revenue, Ministry of Finance, New Delhi. The first quarterly statement would be from the quarter ending 31st December, 1995.
Circular : No. 726, dated 18-10-1995.

What to watch

Three conditions run together: payment through regular banking channels, a payee in one of the named professions resident in India, and a payer with no agent, business connection or permanent establishment in India.
The relief is not free of obligation; the quarterly statement of payees to the Foreign Tax Division takes its place.
The professions named are accountancy and law; a resident in another profession is not covered by the terms of this circular.
Nothing here affects the Indian professional's own liability to tax on the fees; only the deduction machinery is relaxed.

Where you meet it

When a foreign client asks why no Indian tax is to be withheld from a professional bill, and in an Indian firm's assessment where receipts from abroad carry no deduction credit.

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: 21 Date of Issue: 13/6/2012 — [To BE Published in the Gazette of INDIA, Extraordinary, 13 June 2012
Circular No. 8/2009 — Section 194J of the Income-tax Act, 1961 - Deduction of tax at source - Fees for professional or technical services - Ap 24 November 2009
Notification No. 88 — Section 194JOF the Income-tax Act, 1961 –deduction at Source of TAX – Notified Professional Services 21 August 2008
Circular No. 5/2002 — 1126. Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Fina 30 July 2002
Circular No. 720 — 1120. Payment of any sum shall be liable for deduction of tax only under one section 30 August 1995
Circular No. 716 — Section 194A l Interest Other Than "Interest on Securities" 9 August 1995

← Circular No. 727 · Circular No. 725 →

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.