TDS on Professional and Technical Fees Under Section 194J
Section 194J requires TDS at 10% on professional fees and 2% on technical services above ₹50,000 a year. Who deducts, rates, deadlines and penalties.
For FY 2025-26 / AY 2026-27, section 194j tds applies to specified payments to residents under the Income-tax Act, 1961. Professional fees generally attract 10% TDS; qualifying technical-service fees attract 2%. From 1 April 2025, the annual threshold is ₹50,000 separately for professional fees, technical fees, royalty and non-compete payments. Non-salary director payments have no threshold. Deduction depends on the payer’s status and the actual service supplied.
Who must deduct TDS under Section 194J?
Companies, firms, LLPs and other covered payers must deduct TDS, while individuals and HUFs are covered only when their preceding-year business turnover or professional receipts exceed specified limits.
Under Sec. 194J Income-tax Act, an individual or HUF becomes liable if, in the immediately preceding financial year:
- Business sales, turnover or gross receipts exceeded ₹1 crore; or
- Professional gross receipts exceeded ₹50 lakh.
For FY 2025-26, check FY 2024-25 figures. These are specific TDS tests, not the higher limits that may apply for tax-audit purposes. Turnover exactly equal to the relevant limit does not cross this test.
Professional fees paid by an individual or HUF exclusively for personal purposes are exempt under this section. However, this exemption is not worded as a blanket exclusion for every payment category.
An individual or HUF outside Sec. 194J Income-tax Act should also check Sec. 194M Income-tax Act: qualifying payments, including professional fees, exceeding ₹50 lakh to a resident during the year can attract 2% TDS. Ordinary personal doctor consultations generally do not trigger either provision.
Payments to non-residents require separate examination under Sec. 195 Income-tax Act and any applicable tax treaty.
What are the rates and thresholds for FY 2025-26?
The applicable rate is generally 10% or 2%, with a ₹50,000 category-wise annual threshold except for non-salary director payments.
| Payment to a resident | TDS rate | Annual threshold per payee |
|---|---|---|
| Professional fees, including legal, medical, accountancy and architectural services | 10% | ₹50,000 |
| Fees for technical services, not being professional services | 2% | ₹50,000 |
| Royalty for sale, distribution or exhibition of cinematographic films | 2% | ₹50,000 for royalty collectively |
| Other royalty | 10% | ₹50,000 for royalty collectively |
| Payments covered by Sec. 28(va) Income-tax Act, including qualifying non-compete fees | 10% | ₹50,000 |
| Director’s remuneration, fees or commission other than salary | 10% | No threshold |
| Covered payments to a payee engaged only in operating a call centre | 2% | Relevant payment-category threshold |
| Covered payment where PAN is not furnished | Generally 20% | Underlying threshold remains applicable |
The Finance Act, 2025 increased the threshold from ₹30,000 to ₹50,000, effective 1 April 2025. Exactly ₹50,000 does not trigger deduction unless further payments are likely to take the category above the limit.
The threshold applies separately to professional fees, technical-service fees, royalty and qualifying non-compete payments. Thus, ₹45,000 of professional fees and ₹45,000 of technical fees to the same resident do not, by themselves, require deduction.
Call-centre status changes the rate; it does not create an independent threshold category. Director’s sitting fees attract TDS without a monetary exemption, while director’s salary falls under Sec. 192 Income-tax Act.
Sec. 206AA Income-tax Act generally requires 20% deduction for these payments when PAN is not furnished. The separate higher-rate provision for specified non-filers, Sec. 206AB Income-tax Act, was omitted from 1 April 2025.
When should TDS be deducted, deposited and reported?
Deduct TDS when the amount is credited or paid, whichever happens first, and follow the applicable deposit and quarterly reporting deadlines.
Credit to a suspense account or another account can also trigger deduction. Do not defer TDS merely because the vendor has not yet received payment.
The threshold includes sums likely to be credited or paid during the financial year. If an annual engagement already exceeds ₹50,000, deduct from the first relevant credit or payment rather than waiting for actual payments to cross the threshold.
For an ordinary non-government deductor, the compliance calendar is:
| Compliance | Normal deadline |
|---|---|
| Deposit deductions made from April to February | Seventh day of the following month |
| Deposit March deductions | 30 April |
| File Form 26Q for April–June | 31 July |
| File Form 26Q for July–September | 31 October |
| File Form 26Q for October–December | 31 January |
| File Form 26Q for January–March | 31 May |
| Issue Form 16A | Within 15 days of the relevant quarterly statement due date |
These requirements follow Rule 30 Income-tax Rules, Rule 31A Income-tax Rules and Rule 31 Income-tax Rules respectively, subject to any notified extension.
How does the ₹50,000 threshold work in a practical example?
When an initially unexpected additional bill takes the annual category total above ₹50,000, TDS applies to the entire qualifying amount, not merely the excess.
A Bengaluru startup engages a law firm for a standalone assignment costing ₹40,000 in May 2025. No further engagement is then expected, so no TDS is deducted.
In September 2025, an unplanned assignment produces another ₹35,000 bill. Assume these figures exclude separately stated GST.
| Calculation | Amount |
|---|---|
| May professional fee | ₹40,000 |
| September professional fee | ₹35,000 |
| Total professional fees | ₹75,000 |
| TDS at 10% on ₹75,000 | ₹7,500 |
| September fee payable after withholding | ₹27,500 |
The startup deposits ₹7,500 as TDS. The law firm receives ₹67,500 in aggregate fee payments and ₹7,500 as tax credit, subject to correct reporting.
The startup’s professional-service cost remains ₹75,000: TDS is withheld from the vendor’s entitlement, not ordinarily an additional expense.
If ₹75,000 had been expected from the outset, deduction should have started with the May credit or payment.
How do Section 194J and Section 194C differ?
Sec. 194J Income-tax Act covers specified professional and technical payments, whereas Sec. 194C Income-tax Act covers qualifying work contracts.
Under Sec. 194C Income-tax Act, the usual rates are 1% for an individual or HUF contractor and 2% for other contractors. Manpower supply, catering and qualifying printing contracts commonly require examination under this provision.
Do not classify every technology-related invoice as technical services taxable at 2%. Information technology is a notified profession, and software development may constitute professional services attracting 10%. Contracts involving software licences may instead require royalty analysis.
Likewise, data-entry manpower supply may fall under Sec. 194C Income-tax Act, while an engagement involving specialised professional deliverables may differ. Review the agreement, actual work and responsibility for deliverables, not just the invoice description.
What happens if TDS is missed or deposited late?
Non-compliance can result in interest, expense disallowance, statement late fees and penalties, depending on the default.
| Default | Consequence |
|---|---|
| Failure or delay in deduction | Under Sec. 201(1A) Income-tax Act, interest at 1% per month or part thereof, from the deductible date to actual deduction |
| Deducted tax deposited late | Under Sec. 201(1A) Income-tax Act, interest at 1.5% per month or part thereof, from deduction to actual payment |
| Relevant resident-payment expense with TDS default | Potential 30% disallowance under Sec. 40(a)(ia) Income-tax Act |
| Late Form 26Q | ₹200 daily under Sec. 234E Income-tax Act, capped at the deductible tax amount |
| Late or incorrect TDS statement | Potential penalty of ₹10,000–₹1,00,000 under Sec. 271H Income-tax Act, subject to statutory conditions and relief |
Expense disallowance involves the return-filing deadline under Sec. 139(1) Income-tax Act; it is not automatic merely because a monthly deposit deadline was missed. Later compliance may permit deduction in a subsequent year. Prescribed payee-tax-payment relief may also be available.
How SP & SC helps
SP & SC Legal and Taxation Services, Bengaluru, helps classify vendor payments, calculate deductions, arrange challan compliance and file quarterly statements.
Our TDS return filing service also supports reconciliations and correction statements. Fees are a fixed quote after reviewing the case, with a written scope before work begins. Contact SP & SC or WhatsApp +91 90356 74566 with your agreements, invoices and payment records.
Frequently asked questions
Is the threshold ₹30,000 or ₹50,000?
It is ₹50,000 from 1 April 2025, separately for each statutory payment category. Non-salary director payments have no threshold.
Is TDS deducted on separately stated GST?
Generally, no. CBDT Circular No. 23/2017 permits exclusion of separately indicated GST on services for covered resident payments.
What if the professional has no PAN?
Generally deduct at 20% under Sec. 206AA Income-tax Act once the payment is otherwise subject to TDS.
Must I deduct TDS when paying my doctor personally?
Ordinary personal treatment payments generally do not require deduction. Exceptionally large payments require checking Sec. 194M Income-tax Act.
Can a professional request a lower deduction rate?
Yes, a valid certificate under Sec. 197 Income-tax Act can authorise lower or nil deduction, subject to its stated scope, limits and validity.
Written by
SP & SC Editorial
Editorial team at SP & SC Legal and Taxation Services — practising advocates, chartered accountants, and company secretaries publishing hands-on guidance from live client files.
Next steps
What to do next
Guides help you decide. If you need an advocate, CA, or CS on your side, the SP & SC team files, drafts, and represents.
