Introduction
Section 194J of the Income Tax Act governs Tax Deducted at Source (TDS) on payments made for professional and technical services. Whenever a business pays fees to doctors, lawyers, engineers, consultants, or technical experts, it must deduct TDS before making the payment.
As of February 2026, the provisions amended by the Finance Act 2025 apply. Most importantly, the law has increased the threshold limit to ₹50,000 per category. As a result, small businesses now face a reduced compliance burden for smaller payments.
Coverage Under Section 194J
Section 194J applies when you make payments for:
- Professional services
- Technical services
- Royalty
- Non-compete fees
- Director’s remuneration (other than salary)
Therefore, whenever you pay for professional skill or technical expertise, you should check whether Section 194J applies.
Revised Threshold Limit (FY 2025–26)
You must deduct TDS only when the total payment during the financial year exceeds ₹50,000 in a specific category.
| Category of Payment | Threshold (FY 2025–26) |
|---|---|
| Professional Services | ₹50,000 |
| Technical Services | ₹50,000 |
| Royalty | ₹50,000 |
| Non-Compete Fees | ₹50,000 |
Importantly, the ₹50,000 limit applies separately to each category.
For example, if you pay ₹45,000 as professional fees and ₹45,000 as technical fees to the same person, you do not deduct TDS because neither category exceeds ₹50,000. However, once professional fees alone cross ₹50,000, you must deduct TDS.
TDS Rates (FY 2025–26)
The applicable rate depends on the type of payment.
2% TDS
You must deduct TDS at 2% on:
- Fees for Technical Services (FTS)
- Call centre operations
- Royalty for sale, distribution, or exhibition of cinematographic films
10% TDS
You must deduct TDS at 10% on:
- Professional services
- Other royalty (not related to films)
- Non-compete fees
- Director’s remuneration (other than salary)
Special Rule for Directors
You must deduct TDS on director’s remuneration without applying any threshold limit. Therefore, even a small payment attracts TDS.
PAN Requirement
If the payee does not provide PAN, you must deduct TDS at 20%.
Persons Liable to Deduct TDS
Companies, LLPs, and Partnership Firms
These entities must deduct TDS once payments exceed the prescribed threshold.
Individuals and HUF
Individuals and HUF must deduct TDS only if, in the previous financial year:
- Business turnover exceeded ₹1 Crore, or
- Professional receipts exceeded ₹50 Lakh
Time of Deduction
You must deduct TDS at the earlier of:
- Credit of the amount in the books, or
- Actual payment
Therefore, even if you credit the expense before payment, you must deduct TDS at that stage.
Deposit and Filing Requirements
After deduction, you must:
- Deposit TDS by the 7th of the following month
- Deposit March TDS by 30th April
- File quarterly return in Form 26Q
- Issue Form 16A to the payee
Important Compliance Points
First, deduct TDS only on the service amount. If GST appears separately on the invoice, do not deduct TDS on the GST portion.
Second, classify professional and technical services under Section 194J, not under Section 194C.
Further, from 1 April 2025, Section 194T covers payments made by a firm to its partners. Therefore, such payments no longer fall under Section 194J.
Practical Example
Suppose a company pays ₹1,20,000 as professional fees during FY 2025–26. Since the payment exceeds ₹50,000, the company must deduct TDS at 10%.
- TDS = ₹12,000
- Net payment = ₹1,08,000
- Deposit ₹12,000 with the government
Consequences of Non-Compliance
If you fail to deduct or deposit TDS, the law will charge interest. Additionally, late filing fees may apply. The department may also impose penalties and disallow the related expense under Section 40(a)(ia). Therefore, you should comply on time.
Conclusion
Section 194J ensures proper tax deduction on professional and technical payments. The revised ₹50,000 threshold per category simplifies compliance for smaller transactions. However, you must apply the correct rate, monitor category-wise limits, and follow due dates strictly.
Before making any professional or technical payment in FY 2025–26, review Section 194J carefully and ensure full compliance to avoid unnecessary penalties.