Circular No.-8 /2009
F.No.385/08/2009-IT(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
*****
New Delhi, dated the 24th November, 2009
Sub: Applicability of provisions under Section 194J of Income Tax Act’61 in
the case of transactions by the Third Party Administrators (TPAs) with
Hospitals etc.
A number of representations have been received from various stakeholders
regarding applicability of provisions under Section 194J of Income Tax Act’61 on
payments made by Third Party Administrators (TPAs) to hospitals on behalf of
insurance companies for settling medical/insurance claims etc with the hospitals.
2. The matter was examined by the Board. As per provisions of section 194J (1)
‘Any person, not being an individual or a Hindu undivided family, who is
responsible for paying to a resident any sum by way of—
(a) fees for professional services, or
(b) fees for technical services, [or]
[(c) royalty, or
(d) any sum referred to in clause (va) of section 28,]
shall, at the time of credit of such sum to the account of the payee or at the time of
payment thereof in cash or by issue of a cheque or draft or by any other mode,
whichever is earlier, deduct an amount equal to ten per cent of such sum as
income-tax on income comprised therein…”. Further as per Explanation (a) to
194J “professional services” means services rendered by a person in the course of
carrying on legal, medical, engineering or architectural profession etc..’.
3. The services rendered by hospitals to various patients are primarily medical
services and, therefore, provisions of 194J are applicable on payments made by
TPAs to hospitals etc. Further for invoking provisions of 194J, there is no
stipulation that the professional services have to be necessarily rendered to the
person who makes payment to hospital. Therefore TPAs who are making payment
on behalf of insurance companies to hospitals for settlement of medical/insurance
claims etc under various schemes including Cashless schemes are liable to deduct
tax at source under section 194J on all such payments to hospitals etc.
3.1. In view of above, all such past transactions between TPAs and hospitals
fall within provisions of Section 194J and consequence of failure to deduct tax
or after deducting tax failure to pay on all such transactions would make the
deductor (TPAs) deemed to be an assessee in default in respect of such tax and
also liable for charging of interest under Section 201 (1A) and penalty under
Section 271C.
4. Considering the facts and circumstances of the class of cases of TPAs and
insurance companies, the Board has decided that no proceedings u/s 201 may be
initiated after the expiry of six years from the end of financial year in which such
payment have been made without deducting tax at source etc by the TPAs. The
Board is also of the view that tax demand arising out of Section 201 (1) in
situations arising above, may not be enforced if the deductor(TPA) satisfies the
officer in charge of TDS that the relevant taxes have been paid by the deductee
assessee (hospitals etc.). A certificate from the auditor of the deductee assessee
stating that the tax and interest due from deductee assessee has been paid for the
assessment year concerned would be sufficient compliance for the above purpose.
However, this will not alter the liability to charge interest under Section 201 (1A)
of the Income Tax Act till payment of taxes by the deductee assessee or liability
for penalty under Section 271C of the Income Tax Act as the case may be.
5. The contents of the circular may be brought to the notice of officers and
officials working under you for strict compliance.
Hindi version will follow
(Ansuman Pattnaik)
Director (Budget)
Copy to:-
1. The Chairman, Members and other offices in CBDT of the rank of Under
Secretary and above.
2. All Chief Commissioners and Director Generals of Income Tax.
3. 100 copies to DIT (PR, PP & OL) for printing in the quarterly tax bulletin
and for circulation as per their usual mailing list.
4. DIT (TDS), DIT (Recovery), DIT (System), DIT (DOMS), DIT (Vigilance)
and DIT (IT).
5. All CIT (TDS).
6. The Comptroller and Auditor General of India (40 copies).
7. Guard File.
(Ansuman Pattnaik)
Director (Budget)