Section 194J: TDS Rules for Professional and Technical Services
- Asharam Swain
- Nov 18, 2025
- 10 min read
Section 194J of the Income Tax Act, 1961 deals with Tax Deducted at Source (TDS) on payments made to professionals and technical service providers. It ensures that tax is collected at the time of payment itself, helping maintain compliance and reducing evasion. This section applies to services rendered by professionals such as doctors, engineers, consultants, and IT experts. With the recent updates from Budget 2025, the threshold limit has increased to ₹50,000, and TDS rates vary between 2% and 10%, depending on the nature of services.
Table of Contents
Applicability of Section 194J
Section 194J applies when a person or entity makes payments to a resident for professional or technical services, royalty, or non-compete fees. The responsibility to deduct TDS lies with the payer, who must ensure that the tax is deducted before making payment or crediting the amount to the recipient’s account, whichever is earlier. This provision covers all types of businesses, companies, partnerships, and individuals engaged in trade or profession. However, individuals and Hindu Undivided Families (HUFs) are exempt from deducting TDS unless their total sales, gross receipts, or turnover in the preceding financial year exceed ₹1 crore in case of business or ₹50 lakh in case of profession. The section ensures that tax collection begins at the source itself, promoting greater compliance and accountability among service providers and payers alike.
Professional Services Covered Under Section 194J
Professional services under Section 194J include any services rendered by persons in professions such as legal, medical, engineering, architectural, accountancy, interior decoration, technical consultancy, or other notified professions as specified under Section 44AA. This list also extends to film artists, company secretaries, authorized representatives, and other notified experts. For example, consultancy fees paid to a Chartered Accountant, fees paid to a lawyer for legal opinion, or payments made to a doctor for professional services would all fall under this category. The section covers both independent consultants and organized firms, ensuring that all professional income is subject to appropriate tax deduction.
Technical Services and Other Payments Included
Technical services under Section 194J refer to specialized services involving technical, managerial, or consultancy expertise. These include IT support, system design, software maintenance, data analysis, and similar services requiring specific technical knowledge. The section also includes payments for royalties, fees for non-compete agreements, director’s remuneration (other than salary), event management, physiotherapy, coaching, and sports professionals. The purpose is to bring within the TDS net all forms of specialized knowledge-based services, ensuring tax deduction at the time of payment to resident professionals. Payments to non-residents for such services, however, are governed separately under Section 195.
Threshold Limit and Latest TDS Rates for FY 2025–26
From April 1, 2025, the threshold limit for deducting TDS under Section 194J has been raised from ₹30,000 to ₹50,000 per financial year. This means that if total payments made to a single professional or consultant during a financial year do not exceed ₹50,000, no TDS deduction is required. For payments exceeding the threshold, the following rates apply:
10% on professional services
2% on technical services, call center operations, and director’s fees
20% if the payee fails to provide a valid PAN
This revision aligns with the government’s broader objective of easing compliance for small taxpayers while ensuring larger transactions remain within the tax framework.
TDS Deduction Process and Due Dates
The payer must deduct TDS at the time of crediting the payment to the payee’s account or at the time of actual payment, whichever occurs earlier. Once deducted, the TDS must be deposited with the government by the 7th day of the following month, except for March, where the due date is April 30. The payer is also required to file quarterly TDS returns in Form 26Q and issue a TDS certificate in Form 16A to the payee. Accurate filing ensures that the payee can claim the credit for the tax deducted. Delays in deduction, deposit, or filing can attract penalties and interest as prescribed under the Income Tax Act.
Penalties and Consequences for Non-Compliance
Failure to deduct or deposit TDS under Section 194J can result in serious consequences. The payer becomes liable to pay interest at 1% per month for delay in deduction and 1.5% per month for delay in deposit until the payment is made. Additionally, the expenditure for which TDS was not deducted or deposited may be disallowed while computing taxable income under Section 40(a)(ia). Penalties may also apply under Section 271C and prosecution under Section 276B for willful default. Compliance with timelines not only helps avoid penalties but also ensures a transparent record of tax obligations.
How to Claim TDS Credit for Payments Under Section 194J
The recipient of income on which TDS has been deducted can claim credit for the tax while filing their Income Tax Return. The deduction details are reflected in Form 26AS or the Annual Information Statement (AIS), which can be accessed from the TRACES portal or the Income Tax Department’s website. The payee should verify that the TDS deducted has been deposited by the payer before claiming the credit. Mismatches can delay refunds or lead to notices. TaxBuddy simplifies this verification and claim process through its AI-powered platform, ensuring that taxpayers get full credit for all TDS deductions without manual errors.
Difference Between Section 194J and Section 195
While both sections deal with TDS on payments for services, Section 194J applies to payments made to resident professionals, whereas Section 195 governs payments made to non-residents. Section 194J has a fixed TDS rate structure (10% or 2%) and a threshold limit, whereas Section 195 requires the payer to determine the applicable rate based on the nature of income and relevant Double Taxation Avoidance Agreement (DTAA). Section 195 involves obtaining a certificate from the Assessing Officer if the payer believes that the tax should be deducted at a lower rate or not at all.
Role of PAN in TDS Deduction Under Section 194J
PAN plays a crucial role in ensuring correct TDS deduction and credit. When a payee fails to provide a valid PAN, TDS must be deducted at 20% instead of the normal rate of 10% or 2%. This is a punitive measure designed to promote compliance with PAN requirements. The PAN ensures that TDS deducted is correctly mapped to the payee’s tax account, enabling seamless credit during ITR filing. Therefore, professionals and consultants must ensure that their PAN is furnished to every client to avoid higher deductions.
TDS on Director’s Remuneration and Non-Compete Fees
Director’s remuneration or sitting fees, other than those paid as salary, are subject to TDS under Section 194J at the rate of 2%. Similarly, payments made under non-compete agreements, where one party agrees to restrict professional activity or business competition, also attract TDS under this section. Such payments are treated as professional receipts and are taxable as income from business or profession. Deductors must ensure accurate classification of these payments to avoid misreporting under the wrong section.
How Individuals and HUFs Are Covered Under Section 194J
Individuals and Hindu Undivided Families are not required to deduct TDS under Section 194J unless their business or professional turnover in the preceding financial year exceeds ₹1 crore or ₹50 lakh respectively. Once this threshold is crossed, they must comply with all TDS provisions like other entities. This exemption aims to reduce the compliance burden for small businesses and professionals, ensuring that only larger entities with higher turnover engage in TDS-related reporting and deductions.
TDS Compliance Made Easy with TaxBuddy
Managing TDS compliance can be complex, especially for small businesses and independent professionals. TaxBuddy simplifies this process through its automated TDS management tools that help track deductions, generate Form 16A, and reconcile transactions with Form 26AS and AIS. The platform ensures timely filing of TDS returns and error-free reporting, helping users avoid penalties or missed credits. Whether for individuals or businesses, TaxBuddy’s AI-driven technology ensures that tax compliance is seamless, accurate, and time-efficient.
Conclusion
Section 194J plays a key role in ensuring tax is deducted on professional and technical payments before they reach the recipient. With updates from Budget 2025, the revised threshold limit and rates bring more clarity and convenience to taxpayers. Proper compliance protects businesses from penalties while maintaining accurate reporting of professional payments. Platforms like TaxBuddy make managing such obligations simpler and smarter, ensuring every transaction is compliant with current tax rules.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy offers both self-filing and expert-assisted plans to meet the diverse needs of taxpayers. The self-filing plan is designed for salaried individuals and simple cases where users can upload Form 16, verify pre-filled data, and file their returns independently through an AI-driven interface. For those with complex situations such as capital gains, business income, F&O trading, or multiple income sources, the expert-assisted plan provides personalized guidance from qualified tax professionals. This dual approach ensures flexibility and convenience, allowing taxpayers to choose the level of assistance that suits their needs.
Q2. Which is the best site to file ITR? While the official Income Tax e-filing portal (incometax.gov.in) is the statutory platform for filing returns, platforms like TaxBuddy have become preferred by many taxpayers for their advanced features and ease of use. TaxBuddy simplifies the process with AI-powered data extraction, automated validation, and real-time error detection. It eliminates the need for manual entry, reduces chances of errors, and ensures timely submission. Moreover, TaxBuddy provides post-filing support and notice management, which are not available on the government portal, making it one of the best sites for both beginners and experienced taxpayers.
Q3. Where to file an income tax return? An income tax return can be filed either directly on the Income Tax Department’s official portal or through third-party platforms like TaxBuddy that simplify the filing process. On TaxBuddy, users can upload their Form 16, AIS, or salary details, and the system automatically pre-fills most sections using AI algorithms. The platform also provides expert verification before submission to ensure accuracy and compliance with the latest tax rules. Using a guided platform like TaxBuddy helps prevent common errors, saving time and minimizing the risk of receiving tax notices later.
Q4. When should TDS be deducted under Section 194J? TDS under Section 194J must be deducted at the time of crediting the amount to the payee’s account or at the time of actual payment, whichever occurs earlier. The deduction applies when the total payments made to a professional or technical service provider during the financial year exceed ₹50,000. For instance, if a company pays ₹60,000 to a consultant over multiple invoices, TDS must be deducted once the total exceeds the threshold. Timely deduction and deposit of TDS are critical to avoid interest or penalties under the Income Tax Act.
Q5. What is the TDS rate on professional and technical services under Section 194J? Under Section 194J, the TDS rate for professional services such as legal, medical, or consultancy work is 10%, while for technical services and director’s fees, the rate is 2%. In the absence of a valid PAN, the deduction rate increases to 20% as per Section 206AA. The rate is applied on the gross payment amount, excluding GST if shown separately in the invoice. These rates ensure equitable taxation at the source, allowing recipients to claim the deducted amount as credit while filing their returns.
Q6. What happens if TDS is not deducted or deposited on time? Failure to deduct or deposit TDS under Section 194J can lead to multiple consequences. The payer becomes liable to pay interest at 1% per month for delay in deduction and 1.5% per month for delay in deposit until the payment is made. In addition, the expenditure for which TDS was not deducted or deposited may be disallowed under Section 40(a)(ia), increasing the payer’s taxable income. Penalties under Section 271C and prosecution under Section 276B may also apply for willful defaults. Timely deduction, deposit, and filing of TDS returns are therefore essential to remain compliant.
Q7. Can TDS under Section 194J be claimed as credit? Yes, the payee can claim the TDS deducted under Section 194J as credit while filing their Income Tax Return. The TDS amount is reflected in Form 26AS and the Annual Information Statement (AIS), which can be accessed through the TRACES portal or the Income Tax Department’s e-filing website. The credit is adjusted against the total tax payable, reducing the final liability. To ensure smooth processing of refunds or claims, the payee must verify that the payer has deposited the TDS with the government and reported it correctly in quarterly TDS returns.
Q8. Are payments to non-residents covered under Section 194J? No, Section 194J applies only to payments made to residents for professional or technical services. Payments to non-residents for similar services fall under Section 195, which deals with TDS on payments to non-residents. The TDS rate and applicability under Section 195 depend on the nature of income and the relevant provisions of the Double Taxation Avoidance Agreement (DTAA). Unlike Section 194J, Section 195 requires the payer to obtain a certificate from the Assessing Officer for determining the appropriate deduction rate if the payer believes the income is not fully taxable in India.
Q9. What if the payee does not provide PAN? If the payee fails to furnish a valid Permanent Account Number (PAN), the payer must deduct TDS at a higher rate of 20% instead of the standard rate of 10% or 2%. This rule is enforced under Section 206AA to encourage PAN compliance. Without PAN, the TDS credit cannot be linked to the payee’s tax account, resulting in difficulties when claiming credit during return filing. Therefore, it is mandatory for all professionals, consultants, and service providers to provide their PAN to every client to ensure accurate tax reporting and credit allocation.
Q10. Are freelancers covered under Section 194J? Yes, freelancers providing professional or technical services such as graphic design, writing, consultancy, programming, or digital marketing are covered under Section 194J. If their total payment from a single client exceeds ₹50,000 in a financial year, the client must deduct TDS at the applicable rate before making payment. Freelancers should ensure that their clients deduct and deposit TDS correctly and issue Form 16A. They can later claim the deducted TDS as credit when filing their ITR. This provision helps maintain transparency and accountability for freelance income.
Q11. Is GST applicable on payments under Section 194J? Yes, GST may be applicable depending on the nature of services and the GST registration status of the professional. If the professional is registered under GST, the invoice raised will include GST separately. TDS under Section 194J should be calculated only on the base amount excluding GST, provided the GST component is shown distinctly in the invoice. The payer should verify the GST number of the service provider and maintain proper records to ensure accurate compliance under both Income Tax and GST laws.
Q12. How does TaxBuddy help in TDS and ITR compliance? TaxBuddy simplifies TDS and income tax compliance through its AI-powered automation platform. It tracks all TDS deductions, validates data with Form 26AS and AIS, and ensures error-free reconciliation. Users can file their TDS returns, download Form 16A, and verify deposited taxes directly through the platform. For individuals, freelancers, and businesses, TaxBuddy offers both self-filing and expert-assisted options to file ITR seamlessly. It also provides automated alerts for upcoming due dates, helping taxpayers avoid late fees and penalties. With its intuitive design and expert support, TaxBuddy ensures accurate, secure, and timely tax compliance for every user.
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