Section 194J: TDS on Professional Fees Explained
- PRITI SIRDESHMUKH
- 4 days ago
- 9 min read
Section 194J of the Income Tax Act, 1961, mandates the deduction of tax at source (TDS) on payments made for professional and technical services, royalties, and director remuneration. The provision ensures timely tax collection from service-based income such as legal, medical, accountancy, and consultancy fees. Applicable to both individuals and businesses, this section plays a vital role in maintaining transparency and compliance in professional transactions. It is essential for payers and recipients alike to understand the rates, limits, and filing requirements under this section to avoid penalties and ensure smooth tax credit claims.
Table of Contents
Applicability and Scope of Section 194JÂ
Section 194J of the Income Tax Act applies to payments made to residents for professional, technical, or specified services. It ensures that tax is collected at the time of payment to professionals, reducing instances of tax evasion. The provision covers professional services such as legal, medical, accountancy, engineering, architecture, management consultancy, advertising, interior decoration, and sports-related services like coaching or physiotherapy. Technical services include consultancy, managerial, and technological support. It also extends to payments for royalty, non-compete agreements, and director’s sitting fees, except those paid as part of a salary. Essentially, any person or entity (other than individuals or HUFs below turnover limits) making these payments must deduct TDS before releasing funds to the service provider.
TDS Rates and Threshold Limits under Section 194JÂ
The standard TDS rate under Section 194J is 10% for most professional services, royalty, and director’s fees. For technical services, the rate is 2%. However, if the recipient fails to provide a valid PAN, the TDS rate increases to 20%. The threshold limit for deduction is ₹50,000 per financial year, meaning TDS is deducted only when the cumulative amount paid to a professional exceeds this limit. Director’s remuneration, however, has no threshold and is always subject to TDS. From April 1, 2025, the ₹50,000 limit offers relief to small-scale professionals by preventing unnecessary deductions on lower earnings.
How TDS on Professional Fees Works under Section 194JÂ
When a business or organization avails professional or technical services, it must deduct TDS before making payment to the service provider. For example, if a consultant charges ₹80,000 for a project, the payer must deduct 10% (₹8,000) and pay ₹72,000 to the consultant while depositing ₹8,000 as TDS with the government. The deductor must issue a TDS certificate (Form 16A) to the professional, who can then claim the deducted amount as credit while filing the income tax return. This system ensures transparency and helps both parties maintain proper tax compliance.
Section 194J Applicability for Individuals and HUFs
 Individuals and Hindu Undivided Families (HUFs) are generally exempt from deducting TDS under Section 194J. However, this exemption does not apply if their turnover in the previous financial year exceeds ₹1 crore in the case of business or ₹50 lakh in the case of a profession. In such cases, they must comply with TDS provisions like any other taxpayer. This distinction ensures that small taxpayers are not burdened with complex compliance while maintaining accountability for larger entities with higher financial transactions.
TDS on Director’s Fees and Non-Compete PaymentsÂ
Director’s fees, such as sitting fees or commission, are specifically covered under Section 194J and attract a 10% TDS. These payments are distinct from salary, which falls under Section 192. Non-compete fees—payments made to prevent a professional or company from sharing trade secrets, intellectual property, or entering a competing business—also attract TDS under this section. This inclusion ensures that all forms of professional income, whether direct or contractual, are subject to proper tax deduction and reporting.
TDS Compliance, Payment, and Return Filing ProcessÂ
After deducting TDS, the payer must deposit the amount with the government by the 7th of the following month. The transaction must be reported in quarterly TDS returns (Form 26Q), which contain details of deductees, payment amounts, and TDS deducted. The deductor must also issue Form 16A to the professional as proof of deduction. Compliance with these steps ensures that the deducted amount reflects in the professional’s Form 26AS, allowing them to claim credit against their final tax liability. Any delay or default in payment attracts interest and penalties, making timely compliance crucial.
Consequences of Non-Compliance under Section 194JÂ
Failure to deduct or deposit TDSÂ as per Section 194J can lead to multiple consequences. The payer may face disallowance of the expense claimed under Section 40(a)(ia), meaning that the expense will not be permitted as a deduction while calculating taxable income. Additionally, interest at 1% per month for late deduction and 1.5% per month for delayed deposit may apply. The Income Tax Department can also impose penalties under Section 271C for non-deduction of tax. Adhering to timelines and maintaining proper documentation helps avoid these financial and legal repercussions.
Importance of PAN and Documentation for TDS CreditÂ
Quoting a valid PAN while receiving professional payments is essential to ensure correct TDS application and credit. If PAN is not provided, the payer must deduct TDS at a higher rate of 20%. Professionals should regularly check their Form 26AS and Annual Information Statement (AIS) to verify whether TDS credits have been properly reflected. Maintaining invoices, payment receipts, and Form 16A copies helps in reconciling any mismatches. Accurate documentation simplifies income tax filing and prevents future disputes or delays in refund claims.
How TaxBuddy Simplifies TDS and ITR FilingÂ
TaxBuddy provides an automated, AI-driven platform that simplifies tax compliance for individuals, professionals, and businesses. It assists users in verifying TDS deductions, generating accurate reports, and reconciling Form 26AS data with income details. With expert-assisted plans, users receive guidance on handling TDS-related discrepancies and ensuring proper claim of credits. TaxBuddy’s mobile app further streamlines the ITR filing process, enabling users to upload documents, track refund status, and manage tax filings on the go with ease and security.
ConclusionÂ
Section 194J plays a critical role in ensuring proper tax collection from professional and technical services. Understanding its scope, rates, and compliance procedures helps both payers and professionals maintain accuracy in taxation. Using technology-driven tools like TaxBuddy simplifies these complex tasks and ensures seamless tax management. For anyone looking for assistance in tax filing, it is 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?Â
TaxBuddy provides flexibility by offering both self-filing and expert-assisted plans to cater to different types of taxpayers. Under the self-filing option, users can upload essential documents such as Form 16, TDS certificates, and bank statements. The platform’s AI-driven system automatically fills in the relevant data, ensuring error-free filing. For those with complex income structures—like capital gains, business income, or multiple sources—TaxBuddy’s expert-assisted plan provides personalized support from qualified tax professionals who review and file returns on behalf of the taxpayer. This dual approach ensures that every taxpayer, from salaried individuals to business owners, can file accurately and confidently.
Q2. Which is the best site to file ITR?Â
The official Income Tax Department’s e-filing portal is the statutory platform for filing income tax returns in India. However, for a smoother and more guided experience, many taxpayers prefer using trusted platforms like TaxBuddy. It integrates AI-based automation and expert review systems that simplify the entire tax filing process. TaxBuddy helps in document validation, data import from Form 26AS, and reconciliation of TDS records—all under one dashboard. Unlike the government portal, it also provides end-to-end assistance, including notice management and post-filing support, making it one of the most comprehensive and user-friendly options available.
Q3. Where to file an income tax return?
 Income tax returns can be filed online through the official e-filing portal of the Income Tax Department (https://www.incometax.gov.in). Alternatively, users can opt for professional tax filing platforms such as TaxBuddy, which provide a more intuitive, guided filing experience. Through TaxBuddy, taxpayers can easily upload Form 16, track TDS credits, and review their computation summary before final submission. The platform supports both self-filing and expert-assisted filing options, ensuring accuracy, compliance, and convenience without the technical complexities of manual filing.
Q4. Who is responsible for deducting TDS under Section 194J?Â
The responsibility for deducting TDS under Section 194J lies with the person or entity making the payment for professional, technical, or specified services. This includes businesses, organizations, and individuals or HUFs whose turnover exceeds ₹1 crore (business) or ₹50 lakh (profession) in the preceding financial year. The deduction must be made at the time of credit or payment, whichever is earlier. The deductor must then deposit the deducted amount with the government and provide a TDS certificate (Form 16A) to the recipient. Proper deduction and timely deposit are mandatory to avoid interest or penalty under the Income Tax Act.
Q5. What is the applicable TDS rate under Section 194J?Â
Under Section 194J, the TDS rate is 10% for professional services, royalties, and director’s fees, while payments for technical services attract a reduced rate of 2%. In cases where the recipient does not furnish a valid PAN, the TDS rate automatically increases to 20% as per Section 206AA. The deductor must ensure the correct rate is applied based on the nature of the service and the availability of PAN. For example, legal or medical fees would attract 10%, while payments for technical consultancy are subject to 2% TDS.
Q6. What is the threshold limit for TDS deduction under Section 194J?Â
The threshold limit for deduction under Section 194J is ₹50,000 per financial year. TDS must be deducted only when the total payments made to a professional or technical service provider exceed this limit. This means that small payments or one-time engagements below ₹50,000 are exempt from TDS. However, director’s remuneration and fees do not have any threshold; TDS must be deducted on all such payments regardless of the amount. This limit, effective from April 1, 2025, reduces the compliance burden for smaller professionals and payers.
Q7. Is TDS applicable on director’s remuneration?Â
Yes, TDS applies to directors’ remuneration under Section 194J. Payments made to directors such as sitting fees, commission, or professional charges are subject to a 10% TDS deduction. These payments are distinct from salary, which falls under Section 192. Therefore, if a director receives payment in any capacity other than an employee (such as independent professional services or board participation), TDS must be deducted under Section 194J. The company making the payment must ensure timely deduction, deposit, and reporting through Form 26Q.
Q8. Can individuals or HUFs deduct TDS under Section 194J?Â
Individuals and Hindu Undivided Families (HUFs) are not required to deduct TDS under Section 194J unless their business or professional turnover in the previous financial year exceeds ₹1 crore (business) or ₹50 lakh (profession). If they cross this limit, they are obligated to deduct TDS on payments made to professionals or technical service providers. For example, if an individual running a small consultancy firm earns ₹60 lakh in the previous year, they must deduct TDS on payments exceeding ₹50,000 made to another consultant or service provider in the current year.
Q9. What happens if TDS is not deducted or deposited on time?Â
Failure to deduct or deposit TDS as per Section 194J can result in significant consequences. The deductor becomes liable to pay interest—1% per month for late deduction and 1.5% per month for late deposit. Additionally, the expense on which TDS was not deducted may be disallowed under Section 40(a)(ia), increasing the taxable income of the payer. Persistent non-compliance can also attract penalties under Section 271C and prosecution under Section 276B. Regular monitoring and timely payment of TDS are essential to avoid financial and legal repercussions.
Q10. How can professionals claim TDS credit under Section 194J?Â
Professionals receiving payments with TDS deducted can claim credit for the deducted amount while filing their income tax returns. The credit details are available in Form 26AS and the Annual Information Statement (AIS) on the Income Tax Department portal. To ensure accuracy, professionals should verify whether the TDS deducted by clients or payers is correctly reflected in their records. If discrepancies exist, they must request the deductor to revise the TDS return. During ITR filing, the credited TDS amount is automatically adjusted against the taxpayer’s final tax liability, reducing the payable tax or increasing the refund amount.
Q11. Is TDS under Section 194J applicable to freelancers or consultants?Â
Yes, freelancers, consultants, and independent professionals are also covered under Section 194J. Any business or entity paying them for professional or technical services must deduct TDS once the total payment in a financial year exceeds ₹50,000. For instance, if a freelance graphic designer or content strategist receives payments above this limit, the payer must deduct 10% TDS before releasing the payment. Freelancers can later claim credit for the deducted amount while filing their income tax returns, ensuring that the tax already deducted is adjusted against their overall liability.
Q12. How does TaxBuddy help professionals track and file TDS-compliant returns?Â
TaxBuddy simplifies TDS management and return filing through automation and expert support. The platform auto-reconciles TDS entries from Form 26AS, validates deductions, and ensures correct mapping with PAN to prevent mismatches. Professionals can easily upload invoices and TDS certificates, while the system auto-calculates eligible credits and tax payable. In complex cases, TaxBuddy’s experts provide personalized guidance to ensure full compliance with TDS and filing regulations. Through the TaxBuddy mobile app, users can also track their refund status, check TDS credits, and file returns securely and conveniently—all in one place.
