Section 194J of the Income Tax Act, 1961 governs the deduction of tax at source (TDS) on payments made towards professional and technical services. For businesses, professionals, and organisations operating in India during FY 2025-26 (AY 2026-27), understanding this provision is essential to stay compliant and avoid interest, penalties, and disallowance of expenses. This guide from TAXAJ explains who must deduct, the services covered, applicable rates, thresholds, due dates, and the compliance forms you need to file.<\/p>\n
Section 194J requires any person (other than an individual or Hindu Undivided Family below the audit threshold) making specified payments to a resident to deduct TDS before releasing the payment. The section is one of the most widely applicable TDS provisions because it covers everyday business payments such as consultancy charges, legal fees, engineering services, and technical support. TDS deducted under this section must be deposited with the government and reported through quarterly returns.<\/p>\n
The obligation to deduct falls on any person responsible for paying fees for professional or technical services, except an individual or HUF whose business turnover did not exceed Rs 1 crore, or whose professional receipts did not exceed Rs 50 lakh, in the immediately preceding financial year. In other words:<\/p>\n
Section 194J applies to a broad set of payments made to residents. The main categories are:<\/p>\n
The rate of deduction depends on the nature of the payment. A lower rate of 2% applies to technical services and call-centre operators, while most other categories attract 10%.<\/p>\n
| Nature of Payment<\/th>\n | TDS Rate<\/th>\n<\/tr>\n |
|---|---|
| Fees for technical services (not being professional services)<\/td>\n | 2%<\/td>\n<\/tr>\n |
| Payment to call-centre operators<\/td>\n | 2%<\/td>\n<\/tr>\n |
| Professional fees<\/td>\n | 10%<\/td>\n<\/tr>\n |
| Royalty (general)<\/td>\n | 10%<\/td>\n<\/tr>\n |
| Non-compete fees<\/td>\n | 10%<\/td>\n<\/tr>\n |
| Director remuneration (non-salary)<\/td>\n | 10%<\/td>\n<\/tr>\n |
| Payment where deductee has no PAN<\/td>\n | 20%<\/td>\n<\/tr>\n<\/table>\n Note that no surcharge or health and education cess is added to these rates for payments to residents; the flat rate applies to the amount credited or paid.<\/p>\n Threshold Limit for Deduction<\/h2>\nTDS under Section 194J is required only when the aggregate payment in a category during a financial year exceeds Rs 30,000. This Rs 30,000 limit applies separately to each category – professional fees, technical fees, royalty, and non-compete fees. For example, if you pay Rs 25,000 as professional fees and Rs 28,000 as technical fees in a year, no TDS is required because each stays below Rs 30,000.<\/p>\n Importantly, there is no threshold for director remuneration. TDS at 10% must be deducted on the very first rupee of any non-salary payment made to a director, regardless of amount.<\/p>\n Time of Deduction<\/h2>\nTDS must be deducted at the earlier of the following two events:<\/p>\n
|