How to Apply TDS on Professional & Technical Service Payments
Key Takeaways
- TDS on professional fees (CA, lawyer, architect, doctor, engineer) is 10%. TDS on technical fees (managerial, technical, and consultancy services) is 2%.
- The threshold is Rs 50,000 per payee per financial year, calculated separately for each payment type (professional fees, technical fees, royalty, non-compete fees). This was increased from Rs 30,000 effective April 1, 2025.
- No threshold applies to director remuneration (non-salary). TDS at 10% from the first rupee.
- Under the Income Tax Act 2025 (effective April 1, 2026), Section 194J is now part of the consolidated Section 393 framework. Rates and thresholds remain unchanged, but payment codes in TDS returns have changed.
- Failure to deduct or deposit TDS triggers a 30% disallowance of the payment under Section 40(a)(ia), plus interest at 1% to 1.5% per month.
- Software licence payments (right to use computer software) are treated as royalty and attract TDS at 10% under Section 194J.
Every business that pays a chartered accountant, a lawyer, an IT consultant, a management consultant, or a director pays professional or technical fees. Section 194J of the Income Tax Act 1961 (now consolidated into Section 393 of the Income Tax Act 2025) requires TDS to be deducted on these payments before they are released. The rates differ based on whether the service is classified as "professional" or "technical," and getting the classification wrong triggers notices.
This guide covers the rates, thresholds, definitions, exemptions, and filing requirements for Section 194J as they apply from FY 2026-27 onward.
Looking for expert help with TDS on professional fees technical fees Section 194J rates thresholds India FY 2026-27? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Who Must Deduct TDS Under Section 194J
Any of the following persons making a payment to a resident for professional or technical services must deduct TDS:
- Any company (private or public)
- Any partnership firm (including LLPs)
- Any co-operative society
- Central Government, State Government, or any local authority
- Any body established under a Central or State Act, or any Government-owned company
- Any trust, university, or educational institution
- Any individual or HUF whose total sales, gross receipts, or turnover exceeded Rs 1 crore (business) or Rs 50 lakh (profession) in the immediately preceding financial year
The last point is the one most SME owners miss. If your business turnover crossed Rs 1 crore in FY 2025-26 (or professional receipts crossed Rs 50 lakh), you must deduct TDS on all professional and technical fee payments in FY 2026-27. If you were not liable for tax audit under Section 44AB in the preceding year, the obligation does not apply.
Individuals and HUFs paying for purely personal services (visiting a doctor for personal illness, hiring a lawyer for a personal matter) are not required to deduct TDS under Section 194J, even if their turnover exceeds the threshold.
TDS Rates Under Section 194J
Section 194J applies different rates depending on the nature of the payment:
| Payment Type | TDS Rate |
|---|---|
| Professional fees (legal, medical, engineering, architectural, accountancy, advertising, interior decoration, technical consultancy, and other notified professions) | 10% |
| Fees for technical services (managerial, technical, or consultancy services that are not professional fees) | 2% |
| Royalty | 10% |
| Non-compete fees (sums referred to in Section 28(va) of the old Act) | 10% |
| Director remuneration (non-salary fees, commission, sitting fees paid to company directors) | 10% |
| Payments to call centres (where the payee is engaged only in operating a call centre) | 2% |
| No PAN furnished by the payee | 20% (under Section 206AA) |
The 2% rate for technical services was introduced by the Finance Act 2020 (effective from April 1, 2020). Before that change, both professional and technical fees attracted TDS at 10%. The distinction between "professional" and "technical" services is the single most important classification decision under this section.
Threshold Limit: Rs 50,000
The threshold for Section 194J was increased from Rs 30,000 to Rs 50,000 effective April 1, 2025 (Union Budget 2025). This threshold applies for FY 2025-26 and FY 2026-27.
| Payment Type | Threshold (per FY per payee) |
|---|---|
| Professional fees | Rs 50,000 |
| Technical fees | Rs 50,000 |
| Royalty | Rs 50,000 |
| Non-compete fees | Rs 50,000 |
| Director remuneration (non-salary) | Nil (no threshold) |
The Rs 50,000 limit is calculated separately for each payment type. If you pay Rs 45,000 as professional fees and Rs 40,000 as technical fees to the same person in a financial year, no TDS is required on either payment (each category is below Rs 50,000 individually). But if professional fees to that person cross Rs 50,000, TDS applies on professional fees from that point, regardless of what you paid for technical services.
Once the aggregate for a payment type crosses Rs 50,000, TDS must be deducted on every subsequent payment of that type, even if the individual payment is small.
Director remuneration has no threshold. TDS at 10% must be deducted from the first rupee of sitting fees, commission, or other non-salary payments to directors.
Worked Example
Your company makes the following payments to a chartered accountant during FY 2026-27:
| Month | Payment | Running Aggregate | TDS Required? |
|---|---|---|---|
| April | Rs 18,000 (quarterly audit) | Rs 18,000 | No (aggregate below Rs 50,000) |
| July | Rs 18,000 (quarterly audit) | Rs 36,000 | No (aggregate below Rs 50,000) |
| September | Rs 25,000 (tax advisory) | Rs 61,000 | Yes (aggregate crossed Rs 50,000; TDS at 10% on Rs 25,000 = Rs 2,500) |
| December | Rs 18,000 (quarterly audit) | Rs 79,000 | Yes (aggregate already above Rs 50,000; TDS at 10% on Rs 18,000 = Rs 1,800) |
| March | Rs 15,000 (ITR preparation) | Rs 94,000 | Yes (TDS at 10% on Rs 15,000 = Rs 1,500) |
Total TDS deducted: Rs 5,800 on the last three payments. The first two payments (totalling Rs 36,000) were below the threshold and no TDS was required at that time.
What Are "Professional Services" Under Section 194J
The term "professional services" is defined in the Explanation to Section 194J. It covers services rendered in the course of carrying on:
| Profession | Examples |
|---|---|
| Legal | Advocates, solicitors, legal advisors |
| Medical | Doctors, surgeons, pathologists, radiologists (fees for professional consultation, not hospital charges) |
| Engineering | Civil engineers, mechanical engineers, electrical engineers providing consultancy or design services |
| Architectural | Architects providing design, planning, or supervisory services |
| Accountancy | Chartered accountants, cost accountants (audit fees, tax filing, advisory) |
| Technical consultancy | IT consultants, management consultants, business process consultants |
| Interior decoration | Interior designers providing design and decoration services |
| Advertising | Advertising professionals and agencies providing creative services |
| Company secretaries | Company secretaries providing compliance and secretarial services |
| Film artists | Actors, directors, music directors, art directors, dance directors, editors, singers, lyricists, story writers, screenplay writers, dialogue writers, and dress designers working in film production |
| Sports professionals | Sports persons, umpires, referees, coaches, trainers, team physicians, physiotherapists, event managers, commentators, anchors, and sports columnists (notified by CBDT Notification No. 88/2008) |
If a profession is not listed above and has not been separately notified by CBDT, payments for that service do not fall under the "professional fees" category of Section 194J. They may still fall under "fees for technical services" if they involve managerial, technical, or consultancy expertise.
What Are "Fees for Technical Services" (FTS)
Fees for technical services follow the definition in Explanation 2 to Section 9(1)(vii) of the old Income Tax Act. FTS means any consideration for the rendering of any managerial, technical, or consultancy services, but does not include consideration for:
- Construction, assembly, mining, or similar projects
- Services that amount to "professional services" already covered at the 10% rate
In practice, the 2% FTS rate applies to:
- IT services and software development (where the payment is for services, not for the right to use software)
- Management consultancy that does not fall under a recognised profession
- Technical support, maintenance, and AMC services
- Data processing and analytics services
- Call centre operations (where the payee only operates a call centre)
- Engineering services that are not rendered by a person carrying on the "engineering profession" (for example, a company providing technical support rather than an individual engineer)
The distinction between "professional" (10%) and "technical" (2%) often comes down to whether the payee is a recognised professional providing services in their professional capacity, or a company/firm providing technical or consultancy services that do not constitute a notified profession.
Software Payments: Royalty at 10%
Payments for the right to use computer software are treated as royalty under Section 194J. This includes:
- Annual software licence fees (e.g., accounting software, ERP systems, CRM subscriptions)
- Payments for the right to use, distribute, or reproduce software
TDS at 10% applies on such payments once the aggregate royalty to a payee exceeds Rs 50,000 in the financial year.
Payments for software development services (where a developer is hired to write custom code) are classified as fees for technical services (2%) or professional fees (10%), depending on whether the developer is providing technical or professional services.
Payments for SaaS subscriptions where no software is transferred and the customer only accesses a hosted service can be a grey area. The Supreme Court's ruling in Engineering Analysis Centre of Excellence vs CIT (2021) held that payments for copyrighted software (not the copyright itself) are not royalty. However, the Income Tax Department's position on SaaS payments continues to evolve. Consult your CA for the specific classification of each payment.
Director Remuneration: No Threshold
Section 194J requires TDS on any sum paid to a director of a company as fees, commission, sitting fees, or any other payment that is not salary. Key points:
- There is no threshold limit. TDS at 10% applies from the first rupee.
- If the director is also an employee drawing a salary, TDS on salary is deducted under Section 192 (now Section 392). The Section 194J obligation applies only to non-salary payments (sitting fees, commission, consultancy fees, etc.).
- This applies to all directors, including independent directors and non-executive directors.
Timing of Deduction and Deposit
TDS must be deducted at the earlier of:
- The date of credit of the amount to the payee's account (including a suspense account), or
- The date of actual payment (cash, cheque, draft, or any other mode).
After deduction, TDS must be deposited with the government by:
| Deductor | Deposit Due Date |
|---|---|
| Government deductors | Same day as deduction |
| Non-government deductors | 7th of the month following the month in which TDS was deducted |
| March deductions | April 30 of the following financial year |
Late deposit attracts interest at 1.5% per month (or part of a month) from the date of deduction to the date of actual deposit.
Section 393 Under the Income Tax Act 2025: What Changed
From April 1, 2026, the Income Tax Act 2025 is in force. The old scattered TDS sections (including 194J) are consolidated into a table-driven structure under Section 393 (for non-salary TDS).
For professional and technical fee payments, the practical impact is:
| What Changed | Detail |
|---|---|
| Section number | Old: 194J. New: Section 393 (with specific payment codes for professional fees, technical fees, royalty, director remuneration) |
| TDS rates | Unchanged. 10% for professional fees, royalty, director remuneration; 2% for technical fees |
| Threshold | Unchanged. Rs 50,000 per category per payee (nil for directors) |
| Return forms | Payment codes in Form 26Q have changed. Old 194J(a) and 194J(b) codes must be replaced with the new Section 393 numerical payment codes |
| Section references | Form 16A TDS certificates must now reference Section 393 for payments made on or after April 1, 2026 |
The CPC will reject TDS returns that still reference old section codes for payments made on or after April 1, 2026. Update your accounting software or TDS utility before filing the Q1 FY 2026-27 return.
For the full section-by-section mapping, see our Income Tax Act 2025 section mapping guide.
Consequences of Non-Deduction or Non-Deposit
30% Disallowance Under Section 40(a)(ia)
If TDS is not deducted on a payment where it was required, 30% of the expenditure is disallowed while computing business income. For a Rs 5,00,000 annual CA retainer where TDS was skipped, Rs 1,50,000 is added back to your taxable income. At a 25% corporate tax rate, that is Rs 37,500 in additional tax, when the TDS itself would have been Rs 50,000 (recoverable from the CA as withholding, not your cost).
The disallowance applies if:
- TDS was not deducted at all, or
- TDS was deducted but not deposited with the government before the due date of filing the income tax return.
Interest on Late Deduction/Deposit
| Default | Interest Rate |
|---|---|
| TDS not deducted when it should have been | 1% per month (from the date it should have been deducted to the date of actual deduction) |
| TDS deducted but not deposited with the government | 1.5% per month (from the date of deduction to the date of actual deposit) |
Interest is calculated on a per-month basis. Even a one-day delay into a new month counts as a full month.
Penalty Under Section 271C
The Assessing Officer can impose a penalty equal to the amount of TDS that should have been deducted. If TDS of Rs 50,000 should have been deducted, the penalty can be up to Rs 50,000 on top of the TDS amount, interest, and disallowance.
Filing Requirements
| Form | Purpose | Filing Frequency |
|---|---|---|
| Form 26Q | Quarterly TDS return for non-salary payments (covers 194J/393 professional and technical fee TDS) | Quarterly |
| Form 16A | TDS certificate issued to the payee | After each quarter's return is processed |
Quarterly Due Dates for Form 26Q
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April to June | July 31 |
| Q2 | July to September | October 31 |
| Q3 | October to December | January 31 |
| Q4 | January to March | May 31 |
After filing Form 26Q, the deductor must issue Form 16A (TDS certificate) to each payee within 15 days of the due date for filing the quarterly return. From FY 2026-27, Form 16A must reference the new Section 393 payment codes.
Common Mistakes to Avoid
-
Confusing 194J with 194C. Payments for professional or technical services fall under Section 194J (10% or 2%). Payments for "work" to a contractor (construction, manufacturing, transport, catering, manpower supply) fall under Section 194C (1% or 2%). If you hire an IT company for software development, the payment is likely 194J (technical fees at 2%). If you hire a contractor for office renovation, it is 194C. Using the wrong section triggers notices.
-
Applying the wrong rate within 194J. The 2% rate applies only to fees for technical services. Payments to a CA, a lawyer, or a doctor are always at 10%. If you pay an IT company for software maintenance (technical service), the rate is 2%. If you pay an individual IT consultant who provides technical consultancy as a profession, the classification can be ambiguous. When in doubt, deduct at 10% to avoid short-deduction notices.
-
Not tracking aggregates by category. The Rs 50,000 threshold applies separately to professional fees, technical fees, royalty, and non-compete fees. Many businesses lump all payments together and miss the per-category calculation. Maintain separate running totals for each category for each payee.
-
Forgetting TDS on director sitting fees. Director remuneration has no threshold. Even a Rs 5,000 sitting fee paid to an independent director requires TDS at 10%. Many companies miss this for non-executive and independent directors who receive only sitting fees.
-
Deducting TDS on GST component. If the invoice separately shows the base amount and the GST charged on it, TDS is deducted on the base amount only. If the invoice shows a single lump-sum amount without separating GST, TDS is on the full invoice value. Ask professionals to issue invoices with GST breakup clearly shown.
-
Not deducting TDS on reimbursements. If reimbursement of expenses forms part of the professional fee invoice (a single consolidated amount), TDS applies on the full amount. If expenses are reimbursed separately against actual bills, TDS may not apply on the reimbursed portion. Maintain clear documentation.
194J vs 194C: Quick Reference
| Parameter | Section 194J (Professional/Technical) | Section 194C (Contractor) |
|---|---|---|
| Nature of payment | Fees for professional or technical services | Payment for "work" (contract for specific deliverable) |
| TDS rate | 10% (professional) or 2% (technical) | 1% (individual/HUF) or 2% (others) |
| Threshold | Rs 50,000 per category per FY | Rs 30,000 single payment; Rs 1,00,000 aggregate per FY |
| Covers | CA fees, legal fees, IT consultancy, management consulting, software royalty, doctor fees | Construction, transport, catering, manufacturing, manpower supply |
| Key test | Is the payee rendering professional or technical expertise? | Is the payee carrying out work under a contract? |
For a detailed guide on Section 194C, see our TDS on contractor payments guide.
Practical Checklist for SME Owners
- Confirm whether your FY 2025-26 turnover exceeds Rs 1 crore (business) or Rs 50 lakh (profession). If yes, you must deduct TDS under Section 194J in FY 2026-27.
- Maintain a payee-wise, category-wise payment register to track aggregates against the Rs 50,000 threshold for each payment type.
- Collect PAN from every professional, consultant, and director before the first payment. Without PAN, TDS is 20%.
- Classify each payment correctly: professional fees (10%), technical fees (2%), royalty (10%), or director remuneration (10%, no threshold).
- Update your TDS software to use Section 393 payment codes for Q1 FY 2026-27 filings.
- Deposit TDS by the 7th of the following month. Set a recurring calendar reminder.
- File Form 26Q quarterly and issue Form 16A within the prescribed timelines.
- Reconcile Form 26AS / AIS of your payees periodically to confirm deposits are reflecting correctly.
Tax Garden Handles Your TDS Compliance
Tax Garden's TDS compliance plans track every professional and technical service payment, classify it correctly under Section 194J, apply the right TDS rate, deposit TDS before the monthly deadline, and file Form 26Q on time every quarter. No disallowances, no interest, no penalty notices.
For related topics, see our guides on TDS on contractor payments (Section 194C), TDS on salary (Section 192), TDS on property purchase (Section 194-IA), TDS rate chart for FY 2026-27, TDS return filing with Form 24Q and 26Q, new TDS payment codes under the Income Tax Act 2025, and the Section 393 mapping under the new Act.
Frequently Asked Questions
Is TDS under Section 194J applicable on payments to hospitals?
TDS under Section 194J applies on fees paid to individual doctors for professional consultation. Payments to a hospital for treatment, room charges, or diagnostic services are generally not covered under 194J because the hospital is providing a composite service, not professional services in the traditional sense. However, if you pay a doctor directly for consultation (even if the doctor practises at a hospital), TDS at 10% applies once the threshold is crossed. The classification depends on who you are paying and for what specific service.
Should I deduct TDS on payments to a freelance web developer?
Yes. If the freelance web developer is providing software development or IT consultancy services and the aggregate payment exceeds Rs 50,000 in the financial year, TDS must be deducted. If the developer is providing technical services (custom development, coding), the rate is 2%. If the developer is providing professional IT consultancy, it could be 10%. Most software development engagements with freelancers are treated as fees for technical services at 2%.
Is TDS applicable on payments to a foreign professional?
No. Section 194J applies only to payments made to residents of India. Payments to non-resident professionals are covered under Section 195 (now part of the Section 393 framework under the new Act), where TDS rates are determined by the applicable DTAA or the rates specified in the Act, whichever is lower. For payments to non-residents, obtain a CA certificate under Section 195(2) or apply the DTAA rate.
What if TDS is deducted at 10% but the payment was for technical services (which should have been 2%)?
Deducting at a higher rate (10% instead of 2%) does not create a compliance issue for the deductor. The excess TDS will be available as a credit to the payee when they file their income tax return. The payee can claim a refund of the excess amount. However, repeated over-deduction may lead to payees requesting you to apply the correct lower rate. There is no penalty for deducting at a higher rate, but deducting at a lower rate (2% instead of 10%) triggers a short-deduction notice from CPC.
Is TDS required on payments to a partnership firm for CA services?
Yes. If you pay a CA firm (partnership firm) for audit, tax filing, or advisory services, TDS at 10% must be deducted on professional fees exceeding Rs 50,000 in the financial year. The TDS is deducted on the payment to the firm, not to individual partners. The firm claims credit for the TDS in its return.
Can a professional apply for a lower TDS certificate?
Yes. A professional or service provider can apply to the Assessing Officer under Section 197 (corresponding provision under the new Act) for a certificate authorizing the deductor to deduct TDS at a lower rate or nil rate. This is common for professionals whose final tax liability is lower than the TDS being deducted (for example, due to high expenses or losses). The professional must furnish this certificate to the deductor before payment.
How does TDS under 194J interact with GST TDS under Section 51 of the CGST Act?
These are two separate obligations. Income tax TDS under Section 194J is deducted on payments for professional or technical services. GST TDS under Section 51 of the CGST Act applies only to specified government bodies and PSUs making payments above Rs 2,50,000 to GST-registered suppliers. Most private businesses do not need to deduct GST TDS. If both apply, income tax TDS is calculated on the base amount (excluding GST, if shown separately), and GST TDS is calculated on the taxable value under GST rules.
Sources
This guide is verified against Section 194J of the Income Tax Act, 1961 (TDS on professional and technical fees), Section 393 of the Income Tax Act, 2025 (consolidated non-salary TDS table effective April 1, 2026), Section 40(a)(ia) (30% disallowance for non-deduction), Section 206AA (TDS at 20% for no PAN), and Section 271C (penalty for failure to deduct). The threshold increase from Rs 30,000 to Rs 50,000 (effective April 1, 2025) is confirmed from the Finance Act 2025 (Union Budget 2025) and verified against ClearTax, Tax2win, TaxGuru, and BajajFinserv reference materials. The 2% rate for fees for technical services (effective April 1, 2020) is confirmed from the Finance Act 2020. Professional services definition and CBDT-notified professions verified against Explanation to Section 194J and CBDT Notification No. 88/2008 (sports professionals). Software royalty classification verified against CBDT Circular No. 1/2021 and the Supreme Court ruling in Engineering Analysis Centre of Excellence vs CIT (2021). Section 393 consolidation and payment code changes confirmed from ClearTax and CAClubIndia coverage of the Income Tax Act 2025. All rates and thresholds should be verified against incometax.gov.in before applying to specific deductions.
