Section 194J TDS on Professional and Technical Fees Guide

How to Apply TDS on Professional & Technical Service Payments

What is TDS on professional fees under Section 194J? TDS on professional fees (CA, lawyer, architect, doctor) is 10%. Technical service fees attract 2%. The threshold is Rs. 50,000 per payee per year, calculated separately by service type. Director remuneration has no threshold. TDS applies at 10% from the first rupee.

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.

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.

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

Tax Rate Chart

TDS Rates Under Section 194J / Section 393

Rates applicable for FY 2026-27 (Income Tax Act 2025, Section 393)

Fees for Technical Services

Managerial, technical, or consultancy services (non-professional); also call centres

2%

Professional Fees

CA, lawyer, doctor, architect, engineer, accountant, advertising professional

10%

Royalty

Right to use computer software, patents, copyrights

10%

Non-Compete Fees

Sums under Section 28(va) of the old Act

10%

Director Remuneration (Non-Salary)

Sitting fees, commission, consultancy; no threshold : TDS from first rupee

10%

No PAN Furnished

Section 206AA (1961 Act) / Section 397(2) (2025 Act); applies to any payment type if payee has no PAN

20%

Source: Section 194J, Income Tax Act 1961 / Section 393, Income Tax Act 2025; Finance Act 2020 (2% FTS rate)

Section 194J applies different rates depending on the nature of the payment:

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.

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:

Total TDS deducted: Rs 9,400 (10% of Rs 94,000). No TDS was due on the April and July payments when they were made, but once the aggregate crossed Rs 50,000 in September, TDS was deducted on the full Rs 61,000 paid till then.

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:

The Explanation also covers any profession notified by CBDT for Section 44AA or for Section 194J, which is how company secretaries, film artists, information technology, authorised representatives and sports professionals come in. If a profession is not listed above and has not been notified, 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:

• Any construction, assembly, mining or like project undertaken by the recipient
• Amounts taxable in the recipient's hands as salary

Section 194J then applies the 2% rate only to fees for technical services "not being a professional services". If a service qualifies as professional services, the 10% rate applies even though it may also look like consultancy.

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), provided the payee is not rendering them in the notified profession of information technology; services rendered in that profession are professional fees at 10%
• Management consultancy (strategy, operations, HR or process advice). Management consultancy is not a listed or notified profession, so it is a managerial or consultancy service taxed at 2%, unless the service is really rendered in a listed profession, such as legal or accountancy advice, which is 10%
• 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, in the context of payments to non-residents under tax treaties, that payments for copyrighted software (not the copyright itself) are not royalty. The classification of SaaS payments is not settled, so get each payment type checked by a tax professional.

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:

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:

Form 140 reports each payment under its Section 393 payment code, not under 194J(a) or 194J(b). Update your accounting software or TDS utility before filing the Q1 FY 2026-27 statement.

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 under Section 40(a)(ia) of the 1961 Act. For a Rs 5,00,000 annual CA retainer where TDS was skipped, Rs 1,50,000 (30% of Rs 5,00,000) is added back to your taxable income. For a company taxed at 25%, that is Rs 37,500 of extra tax before surcharge and 4% cess. The TDS itself would have been Rs 50,000 (10% of Rs 5,00,000), which is withheld from the CA's fee and is not your cost. The disallowed amount is allowed as a deduction in the year in which the TDS is later deducted and deposited.

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

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

Quarterly Due Dates for Form 140

After filing Form 140, the deductor must issue Form 131 (TDS certificate, which replaces Form 16A) to each payee within 15 days of the due date for filing the quarterly statement: 15 August, 15 November, 15 February and 15 June. For TDS deducted in FY 2025-26 and earlier, Form 26Q and Form 16A still apply.

Common Mistakes to Avoid

1. 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 (2% if technical services, 10% if professional services). If you hire a contractor for office renovation, it is 194C. Using the wrong section triggers notices.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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

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 140 quarterly and issue Form 131 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 140 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 140, new TDS payment codes under the Income Tax Act 2025, and the Section 393 mapping under the new Act.

Frequently Asked Questions

What is the TDS rate on professional fees under Section 194J?

The TDS rate on professional fees (CA, lawyer, architect, doctor) is 10%. Technical service fees attract 2% TDS. The rate applies after the Rs 50,000 annual threshold per payee is crossed.

Who must deduct TDS on professional fees?

Any company, partnership firm, LLP, government entity, or individual/HUF with turnover exceeding Rs 1 crore (business) or Rs 50 lakh (profession) in the preceding year must deduct TDS on professional and technical service payments.

What is the Rs 50,000 threshold for professional fees TDS?

The Rs 50,000 threshold is calculated annually per payee and per service type (professional vs. technical). TDS is not deducted until the cumulative payment to a specific payee crosses Rs 50,000 in a financial year.

When must TDS on professional fees be deposited and reported?

Deposit TDS by the 7th of the month after deduction, or by 30 April for tax deducted in March. Report it in the quarterly non-salary TDS return, Form 26Q for payments in FY 2025-26, due by 31 July, 31 October, 31 January and 31 May. Then issue Form 16A to each payee within 15 days of the return due date so they can match it with Form 26AS.

What are the consequences of not deducting TDS on professional fees?

Interest under Section 201(1A) runs at 1% a month from when tax was deductible until it is deducted, and 1.5% a month from deduction until deposit. Until the TDS is paid, 30% of the fee is disallowed as a business expense under Section 40(a)(ia). A penalty equal to the tax not deducted can be levied under Section 271C, and a late TDS return costs Rs 200 a day under Section 234E.

Is TDS under Section 194J deducted on the GST amount?

No, if the invoice shows GST separately. CBDT has clarified that TDS is then calculated on the fee excluding GST. If the invoice shows a single consolidated amount without splitting out GST, TDS applies to the whole amount. Reimbursement of expenses billed within the same professional fee invoice is generally treated as part of the fee and is subject to TDS.

Is there a threshold for TDS on director sitting fees?

No. Fees, commission or sitting fees paid to a company director that are not salary are covered by Section 194J at 10% from the first rupee, with no Rs 50,000 threshold. This applies to independent and non-executive directors too. Where the director is also an employee, the salary part is subject to TDS under Section 192 instead.

Sources

This guide is verified against Section 194J of the Income Tax Act, 1961 (TDS on professional and technical fees), Section 393(1), Table Sl. No. 6(iii) of the Income Tax Act, 2025 (effective April 1, 2026), Section 40(a)(ia) (30% disallowance for non-deduction), Section 206AA and Section 397(2) of the Income Tax Act, 2025 (TDS at 20% for no PAN), Form 140 and Form 131 under the Income-tax Rules, 2026, 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 the Explanation to Section 194J, professions notified under Section 44AA, and CBDT Notification No. 88/2008 dated 21 August 2008 (sports professionals). Software royalty discussion refers to 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/iec/foportal/ before applying to specific deductions.