Professional Fees TDS Limit: A Comprehensive Overview
- Bhavika Rajput
- Apr 16
- 6 min read
Updated: Apr 29
Tax Deducted at Source (TDS), which focuses on the source of revenue, has helped the nation collect taxes. For a corporate entity, professional fees or fees for technical services are among the most important and common forms of remuneration. Professional expenses can include payments to a doctor, lawyer, engineer, architect, chartered accountant, interior decorator, ads, and other professionals. Management, technical, and consulting services are examples of technical services. Section 194J of the Income Tax Act of 1961 addresses arrangements for Tax Deduction at Source (TDS) for royalties, technical, and professional fees. The individual who makes these contributions must deposit the money with the government after deducting TDS at the appropriate rate of 2% or 10%. TDS, however, won't be charged until the total surpasses Rs. 50,000. In this article, we shall go into great detail about the TDS threshold restrictions on professional fees.
Table of Contents
What are Professional Services?
It alludes to the services one offers to pursue a career in medicine, law, architecture, or engineering. Section 44AA covers accounting, advertising, interior design, technical consulting, and any other profession the CBDT Board notifies. According to Section 44AA, the CBDT has alerted the information technology profession, authorized representatives, company secretaries, and film artists. Additionally, under Section 194J, CBDT has contacted athletes, commentators, event managers, anchors, umpires and referees, physiotherapists, coaches and trainers, team doctors, and sports columnists.
Examples Of TDS On Professional Services
Consultancy fees: TDS is due when a business or individual pays a consultant for expert counsel or services. A financial, legal, or marketing consultant might get payments that are liable to TDS.
Legal fees: TDS applies to any money paid to attorneys or law firms for rendered legal services. It covers costs for legal counsel, contract preparation, court representation, etc.
Technical services: TDS applies to payments made for the competence of engineers, architects, IT specialists, and other technical service providers. For example, TDS is applicable to the payments made to a software developer hired for a project.
Royalties: TDS applies to royalties paid for intellectual property, including patents, copyrights, and trademarks. Payments to writers, musicians, artists, and other creators for their creations fall under this category.
Commission payments: TDS costs money on commissions paid to brokers or agents in exchange for their services. For example, commission-based sales agents would have TDS deducted from their commission income.
Professional fees: TDS applies to payments paid to professionals for their services, such as physicians, chartered accountants, accountants, and engineers.
Technical testing and analysis services: TDS may be applied to payments made to labs or specialists for technical testing and analysis services.
You now understand the fundamentals of TDS on technical services and professional fees, including the rates, timings, and deduction limitations. However, tax computation can still be complex for someone not in finance. An expert can handle the calculations for you.
Limit For Deducting TDS on Professional Services
The tax gets subtracted if the total amount paid for professional and technical services during the year exceeds Rs 50,000.
Understand that the Rs 50,000 maximum limit applies separately to each item or payment. For instance, Mr. X received Rs 20,000 in fees for technical services and Rs 45,000 in royalties from Y Company. Y Company is not responsible for TDS deduction from these payments. This is so because royalties and fees for technical services are subject to separate limits of Rs 50,000.
Payments (commission, fees, or compensation) that the firm makes to a director are not subject to this cap. Regardless of the amount, the tax must be subtracted.
Note: Till FY 2024–2025, the cap was Rs. 30,000.
Person Liable to Deduct TDS on Professional Services
Any individual who pays for professional or technical services is subject to tax deduction at the source. However, the following individuals are exempt from having TDS withheld from such payments:
When an individual or HUF operates a business, the turnover for the previous fiscal year cannot exceed Rs 1 crore.
When an individual or HUF is engaged in a profession, their turnover for the previous fiscal year cannot exceed Rs 50 lakh.
When paying for professional or technical services, all entities (apart from individuals and HUFs exempt from doing a tax audit in the previous year) must deduct tax (TDS).
What is Section 194J TDS?
The Income Tax Act of 1961's Section 194J describes the Tax Deducted at Source (TDS) rules about payments for technical and professional services. According to this clause, when paying a resident, any payer—aside from individuals and Hindu Undivided Families (HUFs)—must deduct TDS at rates of either 10% or 2%, depending on the type and amount of the payment. The TDS rate rises to 20% if the payee fails to supply a Permanent Account Number (PAN). Under Section 195, technical service costs paid by non-resident Indians are liable to 20% TDS. Professional fees paid to attorneys, physicians, engineers, architects, chartered accountants, and interior decorators are all covered by Section 194J. Technical, consulting, and managerial services are also covered.
When is TDS Not Applicable?
In some situations, TDS is not applicable:
Tax deduction is not for individuals or HUFs who make payments only for their purposes. Under Section 197, the person may apply to assess officers for no TDS or TDS at a reduced rate.
When the total amount or the sum of all such sums during the fiscal year does not exceed Rs. 30,000, no tax is withheld.
Special Cases
Maintenance Contracts: Under Section 194C, payments for regular maintenance contracts, which include the provision of spare parts, are deductible from taxes. However, under Section 194J, TDS on Professional Fees will apply if the payment comprises technical services compared to routine maintenance.
Recruitment Agencies: The TDS specified in section 194J shall apply to payments made to recruitment agencies (such as Monster India or Naukri.com, among others).
Regarding GST: TDS is applicable if the GST value (minus GST) is shown separately on the bill under this section.
Media House: Under section 194J, media houses that give advertising agency commissions are subject to TDS.
Conclusion
The government took a good step in Budget 2025 by raising the TDS threshold limit under Section 194J from Rs. 30,000 to Rs. 50,000. This change supports initiatives preserving tax efficiency while reducing compliance requirements for professionals and small enterprises. From April 1, 2025, this change will take effect, and professionals and businesses should adapt their accounting and compliance procedures to reflect it.
FAQ
Q1. What services fall under Section 194J?
The Income Tax Section 194J addresses payments for royalties, technical fees, professional fees, and agent compensation in the form of fees or commissions. It includes payments given to contractors and subcontractors. Payers should adhere to Section 194J's TDS requirements to prevent fines or legal repercussions.
Q2. What is the TDS limit on professional services?
People who provide technical or professional services to businesses or other clients (not just individuals or HUF) will only have their taxes subtracted from their fees if the total amount paid exceeds Rs 50,000. However, as of April 1, 2025, this new barrier will be in effect. The tax gets withheld from payments totaling Rs 30,000 or more in a fiscal year.
Q3. What is the difference between professional & technical services?
While professional services rely on knowledge and expertise, technical services depend on technical expertise and skill. For instance, an engineer provides technical services, whereas a lawyer offers professional services. The primary distinction between professional and technical services is the type of service rendered; however, it is crucial to remember that there are situations in which a service can be both professional and technical. An architect, for instance, might offer technical skills in the engineering and design of structures, but they might also give professional knowledge in project management and cost estimation.
Q4. What is the TDS deduction limit for professional services under Section 194J?
Under Section 194J, professional fees, technical fees, and royalties are often subject to a 10% TDS deduction. A 2% TDS rate gets applied to payments made to contractors or subcontractors. Additionally, after submitting an application using Form 13, one may request reduced rates or total exemptions.
Q5. What if the rendered service is professional in the original sense but not recognized as a notified professional service?
The provisions of Section 194J for TDS on professional fees do not apply to services delivered professionally but are not recognized as notified professional services under the Income Tax Act of 1961. Even though modeling is a professional service, it is not recognized as one by the Act or its associated notifications, as was noted in the DCIT (TDS) vs. Kodak India (P) Ltd. case. Therefore, as Section 194J only applies to notified professional or technical services, payments for such services cannot be subject to TDS under that provision.
Q6. Does the Stipend come under professional tax as per Section 194J?
No, professional tax does not apply to the stipend. Under some circumstances, it might fall under 192.
Q7. Does Section 194J apply to the salary paid to a company's director?
The salary payment is exempt from Section 194J since the director is an employee of the business. As an alternative, taxes must be withheld following Section 192 of the Income Tax Act instructions. However, Section 194J will require TDS to be deducted from any payments given to directors more than their salaries, such as fees or commissions.
Q8. Should I deduct TDS if the consultancy services of a professional are availed for the personal use of the payer before paying his fees?
No, TDS is not required to be deducted by the taxpayer for services used for personal purposes.
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