Claiming TDS Refund for Contract Basis Employees Deducted Under Section 194J: Understanding ITR Forms and Requirements

When a contract basis employee is deducted Tax Deducted at Source (TDS) under Section 194J, they often wonder if they can claim a refund of the TDS amount. This article aims to clarify the process and requirements, including the appropriate Income Tax Return (ITR) form to file for the refund.

Understanding TDS Under Section 194J

TDS under Section 194J is specifically applicable for professional services. This tax is deducted by the payee (service receiver) from the payment made to a service provider (service provider) for professional or technical services. It is crucial to note that this TDS deduction cannot be treated as salary.

Classifying Income for Tax Purposes

The income from professional or technical services falls under the category of Income from Business or Profession (Section 44AA). Depending on the income and the nature of the business, you may choose one of the following:

Option 1: Presumptive Taxation

50% of Gross Receipts: If your gross receipts do not exceed Rs. 5,000,000/-, you can opt for the presumptive taxation scheme. Under this option, 50% of your gross receipts will be deemed as your business profit. Regular Accounting: If your gross receipts exceed Rs. 5,000,000/-, you must maintain regular accounting records and get your accounts audited. In such cases, you are required to file the appropriate ITR form.

Choosing the Correct ITR Form to File

The choice of ITR form depends on whether you are opting for presumptive taxation or maintaining regular business records.

ITR Form 4 or Sugam

For those choosing the presumptive taxation option (50% of gross receipts), you should file either ITR 4 or Sugam.

ITR 4: This form is suitable if you wish to claim certain deductions and you are a salaried individual, a partner in a firm, or a proprietor of a business. Sugam: Specifically designed for small-scale businesses, this form simplifies the tax-filing process by ignoring deductions and claiming business expenses as a single block.

ITR Form 3

For those who have to maintain regular business records due to high receipts (more than Rs. 5,000,000/-), the appropriate form to file is ITR 3. This form is used by individuals and Hindu Undivided Families (HUF) earning income from a business or a profession. ITR 3 allows you to declare your income in detail, including all expenses incurred.

Claiming a TDS Refund

After filing the appropriate ITR form, contract basis employees may claim a TDS refund if the TDS deducted under Section 194J exceeds the actual tax liability calculated during the tax year. To claim a refund, you need to ensure that you have correctly filed your ITR and updated your TDS details accurately.

Steps for Claiming a TDS Refund

Verify Tax Liability: Ensure that the TDS deducted is in compliance with your actual tax liability. Submit Refund Application: You can apply for the TDS refund electronically through the Income Tax Department's official portal. Mail Cash Deposit Advice (CDA): If approved, you will receive a Cash Deposit Advice (CDA) which you need to mail to the nearest NSDL TCHC (Technical Clearing House) via a Registered or Postal Order. Check Refund Status: Monitor your refund application status online to ensure that it is processed effectively.

Additional Requirements and Considerations

To ensure a smooth process, comply with the following additional requirements:

Provide GST Registration Document: If required by the service receiver, you must provide your GST registration document. Meeting Audit Requirements: If your gross receipts exceed Rs. 5,000,000/-, ensure that your accounts are regularly maintained and audited.

Conclusion

Claiming a TDS refund for contract basis employees under Section 194J involves understanding the correct ITR form to file and ensuring compliance with the tax regulations. By following the steps outlined in this article, you can successfully claim your TDS refund and manage your tax obligations effectively.