Applicable TDS Section and Rate for Water Testing Charges, Income Tax

[Ramanathan Seshan]

Dear Experts,

Can you please clarify which section and rate apply to water testing charges? Testing carried out by a private agency accredited by government.

Regards,
S Ram

Posts / Replies

[YAGAY andSUN]

Let’s address the TDS (Income Tax) applicability on water testing charges paid to a private agency accredited by the Government.

✅ TDS Applicability on Water Testing Charges

Water testing services are professional/technical services, and the TDS provisions under the Income Tax Act, 1961 apply accordingly.

📌 Applicable Section: Section 194J

Nature of Payment:

Water testing services fall under “fees for technical services” as defined in Explanation (b) to Section 194J.

📑 Details under Section 194J

Particulars	Details
Applicable Section	Section 194J – Fees for professional or technical services
Applicable Rate	10%
Threshold Limit	TDS to be deducted only if the annual payment to the party exceeds ₹50,000/-
Who should deduct	Any person (other than individual/HUF not liable for audit) making the payment
Time of deduction	At the time of credit to the party's account or actual payment, whichever is earlier
PAN Requirement	If the deductee (service provider) does not furnish PAN, TDS @ 20% is applicable

📘 Definition of “Technical Services”

As per Explanation (b) to Section 194J:

“Fees for technical services” means any consideration for rendering of any managerial, technical or consultancy services, including provision of services of technical or other personnel. Water testing clearly falls under this definition when performed by a scientific/technical agency.

🛑 Not Covered Under Section 194C

• Section 194C (contracts) generally covers works contracts or routine jobs.
• Since water testing involves technical skill and analysis, Section 194J is more appropriate.

✅ Summary Table

Service	TDS Section	TDS Rate	Threshold (per annum)	Remarks
Water Testing by Private Agency	194J	10%	₹50,000 (w.e.f. from 01-04-2025).	Applicable if payer is liable to deduct TDS and annual payment exceeds limit

[YAGAY andSUN]

GST Applicability on Water Testing Services by Private Laboratories

Here's a comprehensive explanation regarding the Goods and Services Tax (GST) applicability on water testing services provided by private laboratories accredited by the government:

1. Classification under GST

Water testing services provided by private laboratories accredited by the government typically fall under the SAC (Services Accounting Code) 998346, which pertains to:

Technical Testing and Analysis Services

This category encompasses services related to physical, chemical, biological, or any other scientific testing or analysis of various substances, excluding those related to human beings or animals.

2. GST Rate

As per the prevailing GST structure:

• GST Rate: 18%

This rate applies to technical testing and analysis services, including water testing conducted by private laboratories.

3. Input Tax Credit (ITC)

Since the water testing service is subject to an 18% GST rate, businesses availing of these services can claim an Input Tax Credit (ITC) on the GST paid, provided they meet the necessary conditions under the GST Act.

4. Exemptions

It's important to note that certain services may be exempt from GST. For instance:

• Government or Semi-Government Laboratories: If the water testing is conducted by government or semi-government laboratories, the services may be exempt from GST. However, this exemption does not extend to private laboratories.

5. Documentation and Compliance

To ensure proper compliance:

• Tax Invoice: The private laboratory should issue a tax invoice with a clear mention of the GST charged.
• GSTIN: Ensure that the laboratory is registered under GST and provides their GSTIN on the invoice.
• Payment Records: Maintain records of payments made for the services, as these will be necessary for claiming ITC.

Conclusion

Water testing services provided by private laboratories accredited by the government are subject to an 18% GST under SAC 998346. Businesses availing of these services can claim an Input Tax Credit (ITC), subject to the fulfilment of conditions specified under the GST Act. It's crucial to maintain proper documentation and ensure compliance with GST regulations to avail of the benefits.

[Ramanathan Seshan]

Dear Yagay-sir,

How do you classify this as a professional service. Please justify.

Regards,

S Ram

[YAGAY andSUN]

Law cannot be justified rather interpreted. Please do read my inputs meticulously for interpretation of Law in this matter. Further, How Water is tested and by which technology, equipment, and what Human skills are required to convert the test results into a report will play an important role in classification of such services?

You mentioned that Testing carried out by a private agency accredited by government. It means in a Lab on at site with certain technology, equipment and specified Human Skills to provide a report against benchmarked standard for comparison.

Interpretation of Water Testing as Technical Services under Indian Tax Law

Under Indian tax jurisprudence, particularly Section 9(1)(vii) of the Income-tax Act, 1961, the term "fees for technical services" includes any consideration for rendering of managerial, technical or consultancy services. The interpretation of what constitutes “technical services” is a matter of legal construction and cannot be justified merely by the nomenclature used in agreements or invoices.

The Hon’ble Supreme Court in Bharti Cellular Ltd. v. CIT [2010 (8) TMI 332 - SUPREME COURT], laid down that technical services must involve specialised, exclusive human intervention and cannot be construed merely because technology or equipment is used. This principle was reaffirmed in CIT v. Kotak Securities Ltd. [2016 (3) TMI 1026 - SUPREME COURT], where the Court held that a mere use of a technical system, without any human element of expertise or interpretation, does not amount to technical services.

Application in the Context of Water Testing Services

Where a service provider undertakes testing of water samples and issues a report regarding its potability or compliance with regulatory standards (e.g., BIS 10500, WHO norms), the tax treatment depends on the scope of the service rendered, the degree of human involvement, and the complexity of analysis.

A. Scientific Process of Water Testing

Water testing involves examination across three principal parameters:

1. Physical Parameters:
   • Characteristics such as turbidity, temperature, colour, odour, and total dissolved solids (TDS).
   • Tools: Turbidity meters, TDS meters, thermometers, colorimeters.
2. Chemical Parameters:
   • Includes testing for pH, alkalinity, hardness, heavy metals (e.g., arsenic, lead), chlorides, nitrates, and fluorides.
   • Tools: pH meters, spectrophotometers, ion-selective electrodes, titration apparatus.
3. Biological Parameters:
   • Detection of microbial contamination (e.g., E. coli, coliform bacteria).
   • Equipment: Incubators, membrane filtration apparatus, autoclaves, culture media.

B. Technology and Equipment Utilised

The water testing process may include the use of advanced laboratory infrastructure and equipment such as:

• High-Performance Liquid Chromatography (HPLC)
• Gas Chromatography-Mass Spectrometry (GC-MS)
• Atomic Absorption Spectrophotometers
• UV-Visible Spectrophotometers
• Colony Counters (for microbial analysis)
• Laboratory Information Management Systems (LIMS) for data integrity

C. Human Skill and Interpretation

Water testing is not limited to mechanical data collection. It requires qualified professionals such as:

• Chemists and microbiologists trained in analytical techniques
• Environmental engineers with domain expertise
• Personnel familiar with interpretation of test results in light of national and international water quality standards

The conversion of raw data into a regulatory-compliant analytical report involves:

• Evaluation of test results against permissible limits
• Identification of potential health risks or regulatory breaches
• Expert remarks or recommendations based on findings

Legal Interpretation: Does Water Testing Constitute “Technical Services”?

Based on judicial precedent and the underlying substance of water testing services:

• If the testing involves expert analysis, interpretation, and issuance of analytical findings, it would fall within the ambit of “technical services”, as defined in Section 9(1)(vii), particularly where human expertise is integral to the service.
• Conversely, where a service provider merely provides raw data or automated readings (e.g., standard test kits or mass reports without analytical input), such activities may not qualify as technical services.

Conclusion

Water testing, when undertaken as a structured process involving advanced equipment and the application of professional expertise for the interpretation of results, would qualify as technical services for the purposes of Indian income-tax law. 

[Ramanathan Seshan]

Dear Yagay-sir,

Thanks for your valuable response.

Regards,

S Ram