Section 194J: TDS on Fees for Professional or Technical Services

Tax Deducted at Source (TDS) plays a crucial role in ensuring tax compliance in India. One of the key sections governing TDS on professional and technical fees is Section 194J of the Income Tax Act, 1961. This section mandates TDS deduction on payments related to professional and technical services, royalty, and director’s fees.

In this blog, we will break down Section 194J, covering its applicability, TDS rates, threshold limits, and exemptions.

What is Section 194J?

Section 194J applies to any person (excluding individuals and Hindu Undivided Families (HUFs), unless covered under special conditions) who makes payments for professional or technical services, royalty, or certain other specified payments to a resident. The payer must deduct TDS at prescribed rates before making the payment.

Applicability of Section 194J

TDS under Section 194J is applicable on the following types of payments:

1. Fees for Professional Services – Payments made for legal, medical, engineering, architectural, accountancy, interior decoration, advertising, technical consultancy, or other professions notified under Section 44AA.
2. Fees for Technical Services – Payments for managerial, technical, or consultancy services.
3. Director’s Remuneration – Any fee or commission paid to a director that is not covered under Section 192 (Salaries).
4. Royalty Payments – As defined under Section 9(1)(vi) of the Income Tax Act.
5. Non-Compete Fees – Payments made under a non-compete agreement as per Section 28(va).

TDS Rates under Section 194J

The applicable TDS rates vary depending on the type of payment:

When to Deduct TDS?

TDS must be deducted whichever is earlier:

• When the amount is credited to the payee’s account
• When the payment is made in cash, by cheque, draft, or any other mode

Threshold Limit for TDS under Section 194J

No TDS is required if the total amount paid during the financial year does not exceed ₹30,000 for each category (i.e., professional fees, technical services, royalty, or non-compete fees).

Exemptions and Special Cases

1. Individuals & HUFs – Generally, individuals and HUFs are not required to deduct TDS under Section 194J unless their business turnover exceeds ₹1 crore or professional receipts exceed ₹50 lakh in the previous financial year.
2. Personal Payments – If an individual or HUF makes a payment exclusively for personal purposes, no TDS deduction is required.
3. Payments to Call Centers – The TDS rate is reduced to 2% instead of 10% for businesses engaged only in call center operations.
4. Payments Below ₹30,000 – If the total payment to a single payee in a financial year is below the threshold limit, no TDS needs to be deducted.

Consequences of Non-Compliance

Failure to deduct or deposit TDS under Section 194J may result in:

• Interest on late deduction/payment – 1% per month for non-deduction and 1.5% per month for late deposit.
• Disallowance of Expenses – The entire amount may be disallowed under Section 40(a)(ia) when calculating taxable income.
• Penalties & Prosecution – Penalties under Section 271C for failure to deduct TDS may be imposed.

Conclusion

Section 194J is a critical provision ensuring tax compliance on payments for professional and technical services. Businesses and taxpayers must carefully track payments to avoid penalties and ensure smooth compliance with TDS rules. Understanding the applicable TDS rates, threshold limits, and exemptions will help in better financial planning and tax management.

Need Assistance with TDS Compliance?

If you need expert guidance on TDS deduction, filing, and compliance, consult a chartered accountant like us at +91 9769647582 to ensure hassle-free tax management.