Section 194J TDS: Ultimate Guide to Professional & Technical Fees
- Rajesh Kumar Kar
- Jul 25
- 14 min read
What is Section 194J of the Income Tax Act, 1961?
Understanding Tax Deducted at Source (TDS) is very important for businesses and professionals today. What is section 194j of the Income Tax Act, 1961, you ask? It's a key rule for TDS on certain services. This section says that a payer must deduct tax before paying a resident for specific services. This article explains section 194j income tax act rules, the services it includes like tds on professional fees and tds on technical services, the TDS rates, new limits for FY 2025-26 (like the ₹50,000 threshold), and how to follow these rules. We will also cover some frequently asked questions.
This information comes from the Income Tax Act, 1961 (Official). For a general overview, you can also look into the Income Tax Act, 1961.
Table of content
When Should TDS be Deducted under Section 194J? (Time of Deduction)
Penalty and Prosecution
Who is Liable to Deduct TDS under Section 194J?
The 194j applicability rules state who must deduct TDS. The person making the payment, called the "payer" or "deductor," has to cut TDS. Generally, any person, other than an individual or a Hindu Undivided Family (HUF), needs to deduct this tax.
However, there's a catch for individuals and HUFs. Section 194j for individuals and section 194j for huf becomes applicable if their accounts needed an audit under section 44ab in the financial year just before the payment. This audit is usually required if a business's turnover is more than ₹1 crore or a professional's gross receipts are over ₹50 lakh. These limits can change, so it's good to check current finance acts. This rule applies to payments made to a resident payee.
So, who deducts tds under 194j?
Any person (like companies, firms, trusts, etc.) making specified payments.
Individuals or HUFs, if their previous year's turnover or gross receipts were high enough to require a tax audit under Section 44AB.
When is TDS under Section 194J NOT Applicable?
There are situations where 194j not applicable rules apply. TDS under Section 194J is not needed in these cases:
When an individual or HUF makes a payment for purely personal expenses. For example, if an individual pays legal fees for a personal family matter, TDS under Section 194J might not apply. But, if it's for their business, it could be different.
If the total payment in a financial year to a service provider is within the set threshold limit (we'll talk more about this limit later).
When payments go to non-resident individuals or entities. These payments usually fall under Section 195 of the Income Tax Act. For more details, you can check information on payments to non-residents.
Some interpretations suggest individuals/HUFs might have specific 194j exemption for royalty and non-compete fees even if their business income is high enough for a tax audit. It's best to check the latest rules on this.
What Types of Payments are Covered under Section 194J?
Many types of payments covered under 194j exist. It's important to know these to make sure you deduct TDS correctly. Section 194J applies to the following payments made to a resident:
Fees for professional services: This is a common one. We'll define this in detail below.
Fees for technical services: This also has a specific meaning under the Act.
Royalty: Payments for using rights like patents, copyrights, etc.
Non-compete fees: Payments made to someone for agreeing not to compete in a business or profession, or for not sharing know-how, patents, etc.
Director's remuneration (not being salary): Any fees or commission paid to a director that isn't treated as salary (salary TDS is under Section 192). Examples include sitting fees for board meetings.
The services under section 194j are quite specific. There's a detailed 194j professional services list and 194j technical services list which helps clarify things. Payments for royalty under 194j and non-compete fees 194j also have their definitions. For director fees tds, it specifically means fees not taxed as salary.
Defining "Professional Services"
The professional services definition 194j is quite clear. "Professional services" means services provided by a person in their professional capacity. The list of professional services for tds under this section includes:
Legal profession
Medical profession
Engineering or architectural profession
Profession of accountancy
Profession of technical consultancy
Profession of interior decoration
Profession of advertising
The CBDT can also notify other professions. Examples of notified professions section 194j include sports persons, commentators, event managers, anchors, umpires, referees, physiotherapists, coaches, trainers, team physicians, and sports columnists. Film artists and company secretaries are also included.
Defining "Fees for Technical Services" (FTS)
The technical services definition 194j refers to any payment for providing managerial, technical, or consultancy services. This includes offering the services of technical or other skilled people.
However, fts under 194j does not include:
Money paid for any construction, assembly, mining, or similar project taken on by the person receiving the payment.
Payments that would be counted as "Salaries" for the recipient.
Some examples of technical services for tds are IT services, software development (if it's not considered royalty), management consultancy, and engineering consultancy (if not purely professional services). It's worth noting the potential overlap with professional services, but the distinction is important because FTS often has a lower TDS rate of 2%.
Understanding "Royalty" and "Non-Compete Fees"
The royalty definition 194j is based on Section 9(1)(vi) of the Income Tax Act. Royalty means payment for:
Transferring rights for patents, inventions, models, designs, secret formulas, or trademarks.
Using copyrights for literary, artistic, or scientific work, including films or tapes for radio broadcasting (but not for the sale, distribution, or exhibition of cinematographic films, which has specific rules).
Using any industrial, commercial, or scientific equipment.
Sharing information about technical, industrial, commercial, or scientific knowledge, experience, or skill.
TDS on copyright and tds on patent fall under royalty.
Non-compete fees meaning 194j refers to payments made to someone for an agreement that stops them from:
Doing any business or professional activity for a certain time or in a specific area.
Sharing any know-how, patent, copyright, trademark, license, franchise, or similar business or commercial rights. This is linked to Section 28(va) of the Act.
Director's Remuneration (Other than Salary)
TDS on director remuneration 194j applies to any payment like fees or commission to a director that is not taxed as 'Salary' under Section 192. Examples of such payments are sitting fees paid to directors for attending board meetings or a commission that isn't part of their regular salary.
It's important to distinguish 194j vs 192 for directors. If a director is an employee and gets a salary, that part is covered by TDS under Section 192. Only non-salary payments to directors fall under Section 194J. There is no minimum threshold for deducting TDS on these director payments.
Threshold Limits for TDS Deduction under Section 194J
A very important update is the section 194j threshold limit 2025. The government has increased the threshold for TDS deduction under Section 194J. For fees for professional services, fees for technical services, royalty, and non-compete fees, the limit is now ₹50,000 per financial year. This 194j new limit 50000 is effective from April 1, 2025 (meaning for Assessment Year 2026-27 and onwards).
This tds limit professional fees and tds limit technical services applies separately for each category of payment. For instance, a person can receive up to ₹50,000 for professional fees and another ₹50,000 for technical services from the same payer in a financial year without TDS, if these are distinct services. If the payment for a specific category goes over ₹50,000, TDS must be deducted on the whole amount for that category.
For payments to a director (remuneration other than salary, like sitting fees), there is no threshold limit. TDS is deductible on any amount paid.
Here's a quick look at the threshold limits:
Category of Payment | Threshold Limit (until March 31, 2025) | Threshold Limit (from April 1, 2025) |
Fees for Professional Services | ₹30,000 p.a. | ₹50,000 p.a. |
Fees for Technical Services | ₹30,000 p.a. | ₹50,000 p.a. |
Royalty | ₹30,000 p.a. | ₹50,000 p.a. |
Non-compete Fees | ₹30,000 p.a. | ₹50,000 p.a. |
Director's Remuneration (non-salary) | No Limit | No Limit |
When Should TDS be Deducted under Section 194J? (Time of Deduction)
Knowing when to deduct tds under 194j is critical for compliance. The time of tds deduction 194j is at the earlier of these two events:
The time when the sum is credited to the account of the payee. This applies even if it's credited to a "suspense account" or any other account name.
The time of actual payment, whether in cash, by cheque, by draft, or any other method.
So, if you make an tds on advance payment 194j, the TDS needs to be deducted at the time of that advance payment. For example, if a company's accountant makes a provision for professional fees in the books on March 28th but pays it on April 10th, TDS should be deducted on March 28th, as that's earlier.
Depositing Deducted TDS with the Government
After deducting TDS, the 194j tds payment due date must be followed for depositing it with the government. The due dates are:
For TDS deducted from April to February: On or before the 7th day of the following month.
For TDS deducted in March: On or before April 30th.
You use Challan ITNS 281 for 194j payments. Learning how to pay 194j tds is simple; it's usually done online via the Income Tax Portal for e-payment. If you need a guide, you can check for resources on how to pay TDS online.
Filing TDS Returns (Form 26Q)
Deductors must file quarterly TDS returns. For payments under Section 194J, the 194j tds return form is Form 26Q for section 194j. You need a TAN (Tax Deduction and Collection Account Number) to file these returns.
The due date for form 26Q is as follows:
Quarter | Period | Due Date |
Q1 | April - June | July 31 |
Q2 | July - September | October 31 |
Q3 | October - December | January 31 |
Q4 | January - March | May 31 |
For guidance on how to file form 26q, you can refer to detailed guides like Filing Form 26Q.
Issuing TDS Certificates (Form 16A)
The deductor has to issue a 194j tds certificate, which is Form 16A for 194j, to the deductee (the person whose tax was deducted). This certificate helps the deductee claim credit for the TDS when filing their income tax return.
The due date for form 16a issuance is within 15 days from the due date of filing Form 26Q. For more about this certificate, you might find information on Form 16A helpful.
What Happens If You Don't Comply with Section 194J?
Non-compliance with Section 194J can lead to serious consequences of not deducting tds. There can be interest, penalties, and even disallowance of expenditure. Understanding the penalty for non deduction of tds 194j and interest on late payment of tds 194j is important.
Interest on Late Deduction/Late Payment of TDS
If you delay deducting or paying TDS, interest under Section 201(1A) applies:
For late deduction: 1% per month or part of a month. This is calculated from the date TDS was supposed to be deducted until the date it is actually deducted.
For late payment (after deduction): 1.5% per month or part of a month. This is calculated from the date TDS was deducted until the date it is actually paid to the government.
The interest rate tds late deduction and interest rate tds late payment are designed to ensure timely compliance.
Disallowance of Expenditure
Under Section 40(a)(ia), if TDS that was required to be deducted under Section 194J is not deducted, or if it's deducted but not paid on or before the due date of filing the Income Tax Return, then 30% of that expenditure will be disallowed. This means you cannot claim that 30% as a business expense, which increases your taxable profit. This 30% disallowance tds 194j is a significant consequence.
If the TDS is later deducted and paid in a subsequent year, the disallowed expenditure can usually be claimed in that year.
Penalty and Prosecution
Various penalties can apply:
Penalty under Section 271C: This penalty can be equal to the amount of tax that was not deducted or not paid.
Late filing fee for TDS return (Form 26Q) under Section 234E: A fee of ₹200 per day is charged for every day the TDS return is late. This fee cannot exceed the total TDS amount.
Penalty for late filing of TDS return under Section 271H: This penalty can range from a minimum of ₹10,000 to ₹1,00,000. This is for delays in filing TDS returns or for filing incorrect returns, and it's in addition to the fee under Section 234E.
Prosecution: In severe cases of default, such as failing to pay the deducted TDS to the government, prosecution can also be initiated.
Important Points and Clarifications for Section 194J
Here are some 194j clarifications and special points to keep in mind. These special cases section 194j often cause confusion.
Section 194J vs. Section 194C vs. Section 194M
Understanding the difference between 194j and 194c and 194j vs 194m is vital.
Section 194C (TDS on Contracts): This section applies to payments for carrying out any "work" under a contract. This includes advertising contracts (but not professional advertising services which fall under 194J), broadcasting, telecasting, carriage of goods, and catering.
Section 194J: This section, as we've discussed, is for specific professional and technical services, royalty, and non-compete fees.
Section 194M (TDS on certain payments by Individuals/HUFs): This section applies to individuals or HUFs who are not required to deduct TDS under Sections 194C, 194H (commission/brokerage), or 194J because their accounts are not subject to audit. If such individuals/HUFs make payments exceeding ₹50 lakhs in a year for contract work or professional fees, they must deduct TDS at 5%.
Here’s a quick comparison: TDS on contract vs professional fees is a key distinction.
Feature | Section 194J | Section 194C | Section 194M |
Primary Focus | Professional & Technical Services | Contractual Work | Contract/Professional fees by non-auditable Individuals/HUFs |
General Payer | All (Individuals/HUFs if audited) | All (Individuals/HUFs if audited) | Individuals/HUFs (not liable to audit under 44AB) |
Key Threshold | ₹50,000 p.a. (from 1 Apr 2025) | ₹30,000 single, ₹1 Lakh p.a. aggregate | ₹50 Lakhs p.a. |
Common TDS Rate | 2% (Technical), 10% (Professional) | 1% (Individuals/HUFs), 2% (Others) | 5% |
For more on these, you might want to read about Section 194C and Section 194M.
Payments to Hospitals or Medical Professionals
Regarding tds on hospital payments, if an individual makes a payment for personal medical treatment and is not subject to a tax audit under Section 44AB, Section 194J generally does not apply. However, if a company pays a hospital for medical services for its employees, and these are considered fees for professional services exceeding the threshold, 194j medical services provisions might apply. It can get complex with payments to retainers versus specific service fees.
TDS on Event Management Fees
For tds on event management fees, it depends on the nature of the service. If event management is a notified professional service (e.g., specialized planning by notified event managers), Section 194J applies. If it's more like contractual work (e.g., specific tasks like decoration or catering handled separately), Section 194C might be more appropriate. The contract terms and whether the event manager is specifically notified under 194j for event managers are key.
Lower Deduction or Nil Deduction Certificate (Form 13)
A payee who believes their total income will be below the taxable limit or justifies a lower rate of TDS can apply for a lower tds deduction 194j. They can do this by submitting Form 13 for tds to the Assessing Officer. If the Assessing Officer is satisfied, they may issue a certificate for nil TDS or TDS at a lower rate. The payer should then deduct TDS according to this nil tds certificate. For guidance on this, you can look for information about applying for Form 13.
Your 194J Compliance Checklist
This 194j compliance checklist can help businesses ensure they follow the rules for how to comply with section 194j:
✅ Identify all vendors/service providers receiving payments covered under Sec 194J.
✅ Confirm if each vendor is a resident of India.
✅ Get the PAN of every vendor. If a PAN is not available, prepare to deduct TDS at 20%.
✅ Track total payments to each vendor during the financial year for each service category (professional, technical, etc.) to monitor the threshold limit.
✅ Correctly classify the service (professional, technical, royalty, etc.) to apply the right TDS rate.
✅ Deduct TDS if the payment exceeds ₹50,000 (for relevant categories, from April 1, 2025) or if it's director's remuneration (which has no threshold).
✅ Deduct TDS at the correct rate (2%, 10%, or 20% if no PAN).
✅ Deposit the TDS with the government by the due date (7th of the next month, or April 30th for March deductions) using Challan ITNS 281.
✅ File the quarterly TDS return (Form 26Q) by the due date.
✅ Issue the TDS certificate (Form 16A) to the vendor by the due date.
✅ Maintain proper records of all TDS deductions, deposits, and returns filed.
Conclusion: Staying Compliant with Section 194J
The section 194j summary is that it's a rule to ensure taxes are collected on payments for various professional and technical services, royalties, and certain fees. Understanding the types of services included, the TDS rates, and especially the new threshold of ₹50,000 (from April 1, 2025), is vital for everyone making such payments.
The 194j compliance importance cannot be overstated. Deducting TDS on time, depositing it with the government correctly, and filing TDS returns by the due dates are all necessary to avoid tds penalties, interest, and other issues.
Tax laws can be complex. If you have specific situations or doubts about Section 194J, it's always a good idea to consult with our tax experts to ensure you're fully compliant.
Frequently Asked Questions on Section 194J TDS
What is the new threshold limit for Section 194J from FY 2025-26?
The new threshold limit is ₹50,000 per financial year for professional fees, technical fees, royalty, and non-compete fees, effective April 1, 2025. For director's remuneration (not salary), there's no threshold.
Is TDS under 194J applicable on reimbursement of expenses?
Generally, TDS is not applicable on reimbursement of actual expenses if they are billed separately from the professional/technical fee. However, if it's a part of a consolidated or composite fee without a clear breakup, TDS might apply to the whole amount. It's a bit of a tricky area.
What if I pay an advance for professional services? Is TDS applicable?
Yes, TDS is applicable at the time of payment or credit, whichever is earlier. So, TDS must be deducted on advance payments.
Do I need to deduct TDS if I make payment to a government agency for technical services?
Generally, yes. Payments to government agencies for services that fall under Section 194J are subject to TDS unless there's a specific exemption notification for that agency or payment type.
Is GST component included for TDS calculation under 194J?
No, tds on gst component 194j is not required if the GST amount is shown separately in the invoice. This is as per CBDT Circular No. 23/2017. TDS should be on the basic value of services.
What is the difference between Section 194J(a) and 194J(b)?
These were older sub-sections often used to differentiate rates. The current structure is more direct: 2% for technical services (and call centres/certain royalty) and 10% for professional services, other royalty, non-compete fees, and director's remuneration (non-salary).
Can an individual not having a business claim TDS credit deducted under 194J?
Yes. If an individual (even a salaried person) receives fees for services where TDS under 194J was deducted, they can claim credit for this TDS when filing their income tax return, provided that fee is part of their declared income.
Are payments to recruitment agencies covered under 194J?
It depends. If the recruitment agency provides services considered professional (like specialized executive search) or technical, then 194J could apply. If it's seen as a contractual supply of manpower without specialized skill, Section 194C might be more relevant.
What if a mistake is made in TDS deduction or payment?
Mistakes can usually be corrected. This might involve paying the short deduction with interest, or filing a revised TDS return (Form 26Q). It's best to rectify errors as soon as they are noticed to minimize interest and penalties.
Is TDS applicable on fees paid to a coach or trainer?
Yes, if the coach or trainer provides services notified as "professional services" by the CBDT (like sports coaches), then Section 194J applies if payments exceed the threshold.
If I pay a consultant in foreign currency, does 194J apply?
Section 194J applies to payments made to a resident. If the consultant is a non-resident, then TDS provisions under Section 195 would typically apply, not 194J.
Is there a specific format for invoices when 194J is applicable?
There isn't a mandatory specific format dictated by Section 194J itself. However, it's good practice for the invoice to clearly state the nature of the service, the service value, and any GST charged separately to make TDS calculation easier.
What if the professional/technical service provider is a partnership firm or a company?
Section 194J still applies if the service provider (whether a firm or a company) is a resident and the payment is for the specified services and exceeds the threshold. The status of the payee (firm/company) doesn't change the applicability, only that they must be a resident.
Is Section 194J applicable on fees paid for software purchase?
This is a complex area. If the payment is for the 'use' or 'right to use' software, it could be treated as royalty, and 194J would apply. If it's an outright sale of off-the-shelf software (like buying a box product), it might be treated as a sale of goods, and 194J may not apply. This often depends on the specific terms of the license agreement and has been subject to legal interpretations.
How does Section 194J interact with Section 194LA (TDS on compensation on acquisition of immovable property)?
These two sections cover completely different types of payments. Section 194J is for professional/technical fees, etc., while Section 194LA is for TDS on compensation paid when immovable property (other than agricultural land) is compulsorily acquired. There is no direct interaction between them.
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