TDS on Advertisement under the Income Tax Act

The Aim of TDS is to collect tax from the very source of income. A person or company (deductor) who is liable to make payment of specified nature to any other person or company (deductee) shall deduct tax at source as prescribed by the tax department and remit the same into the account of the Government.

The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount as deducted on the basis of Form 26AS for TDS certificate issued by the deductor.

To understand whether TDS on advertisement will be deductible under section 194C or 194J of the Income Tax Act, nature and use of service has to be understood: 

194C talks about contractual service which are the services received from an advertising agency. For example, advertisement charge paid to newspapers.

If the services are utilized on a recurring basis during the year i.e. periodical contract basis, it can be considered a contract under Sec 194C TDS. For example, any advertising agency has been given the contract to advertise the products of a company throughout the year in various media platforms and payments are also recurring in nature.

194J talks about Professional fee which are the services received from a professional individual or organization. For example, fee paid to a company for providing services to create an advertisement, service fee paid to an actor. If the services are utilized once in a year, it can be considered under Sec 194J. For example, If any professional house is appointed for doing any advertising work as a professional service then Section 194J will apply

Let us understand both the sections in greater detail:

Table of Contents:

1. Sec 194C - TDS on Payment to Contractors

2. Sec 194J - TDS on Professional Fees

3. What is the Scope and Meaning of Advertising?

Sec 194C - TDS on Payment to Contractors

Any payment made to a Contractor for providing services on a contract basis are covered under section 194c tds.

TDS is to be deducted if:

• A single payment or credit exceeds Rs. 30,000

• Sum of payments or credits exceed Rs. 1,00,000 during the financial year(Applicable from June 2016)

TDS is to be deducted at the rate of:

When PAN available -

• Where the payment is made to any individual or HUF – 1%

• Where the payment is made to any other entities – 2%

In absence of PAN of the payee, rate of TDS would be 20%.

• Issue of TDS certificate:

Every deductor is required to issue TDS certificate in Form 16A (For tax deducted on payments other than salary) to the deductee on quarterly basis. Every deductor shall issue Form 16A by downloading it from TRACES website and properly authenticated by using digital signature or manual signature. 

Sec 194J - TDS on Professional Fees

Any payment made for the following services:

• Fee for professional service

• Fee for technical service

• Remuneration, fee or salary paid to a Director

• Royalty

TDS is to be deducted if:

• A single payment or credit exceeds Rs. 30,000

• Sum of payments or credits exceed Rs. 1,00,000 during the financial year

TDS is to be deducted at the rate of:

10% if the payment is made to a Resident In absence of PAN of the payee, rate of TDS would be 20%.

TDS deduction under section 194J is also applicable to the following cases:

• Payment to hospitals for rendering medical services.

• Advertising agencies making payment to film artist towards professional fee.

• Payment to HR consultancy or recruitment agencies.

• Payment to share registrars by companies

Section 194C of the Act states that any person responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labor), in pursuance of a contract between the contractor and the following:

• The Central Government or any State Government

• Any local authority

• Any corporation established by or under a Central, State or Provincial Act

• Any company

• Any co-operative society

• Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both

• Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of India

• Any trust

• Any university or deemed university

• Any firm

The expression, “work” in this section would include-

• Advertising

• Broadcasting and telecasting including production of programs for such broadcasting or telecasting

• Carriage of goods and passengers by any mode of transportation, other than railways

• Catering

• Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, But does not include manufacturing or supplying a product according to the requirements or specifications of a customer by using material purchased from a person, other than such a customer.

What is the Scope and Meaning of Advertising?

Advertising may be in print or electronic media i.e. in newspapers, radio, television etc. In such cases, 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.

Clarifications on advertising contracts:

The term ‘advertising’ has not been defined in the Act. During the course of consideration of the Finance Bill, 1995, the Finance Minister clarified that the amended provisions of tax deduction at source would apply:

• When a client makes payment to an advertising agency and not when advertising agency makes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent. 

• When an advertising agency makes payments to their models, artists, photographers, etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and technical services under section 194J of the Act. 

• If the advertising agencies give a consolidated bill including charges for art work and other related jobs as well as payments made by them to media, the deduction will have to be made under section 194C at the rate of 1 per cent. 

• The advertising agencies shall have to deduct tax at source at the rate of 5 per cent under section 194J while making payments to artists, actors, models, etc. 

• If payments are made for production of programmes for the purpose of broadcasting and telecasting, these payments will be subject to TDS at 2 per cent. 

• The payments made directly to print and electronic media would be covered under section 194C as these are in the nature of payments for purpose of advertising. Deduction will have to be made at the rate of 1 per cent. However, the payments made directly to Doordarshan may not be subjected to TDS as Doordarshan, being a Government agency, is not liable to income-tax.

• Sponsorship of debates, seminars, to earn publicity by way of banners by the organizers – Section 194C is applicable hence TDS must be deducted at the prescribed rates.

• Where the advertisement is put up by installing hoardings:

1. If space is taken on rent and then further sublet for putting advertisement hoardings, the eligible for TDS under section 194I (rent).

2. For any other cases, 194C is applicable.

• The person responsible for making payment to resident contractor/sub-contractor should deduct TDS:

1. either at the time of crediting such sum to the account to the payee or

2. at the time of payment thereof in cash or

3. by an issue of a cheque or by any other mode, whichever is earlier.

Where any sum is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such amount, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Thus, the tax has to be deducted even if the amount payable to resident contractor/subcontractor is transferred to suspense account by the payer in his books.

• No tax is required to be deducted in the following cases:

• Where the sum paid or credited in pursuance of any contract does not exceed Rs. 30,000

• where the aggregate of the amounts of such sums credited or paid during the financial year does not exceed Rs. 1,00,000 the person responsible for paying such sums will not deduct TDS 

• Where the payer is an individual or HUF who have gross receipts, sales, or turnover not more than

1. 1 crore for any business

2. 25 lakhs for any profession

• Where such sum is credited or paid exclusively for the personal use of the payer (who may be either individual or HUF).

Written by: Titiksha Sinha