TDS on professional fees is deducted at 10% under Section 194J of the Income-tax Act, one of India's withholding tax provisions, when payments to a resident cross ₹50,000 in a financial year.
Fees for technical services and call-centre operators are deducted at a lower 2%, and if the person you pay has no PAN, the rate rises to 20%.
The threshold was raised from ₹30,000 to ₹50,000 with effect from 1 April 2025 (FY 2025-26), and it is counted per category across the whole year, not per bill.
Tax is deducted at the earlier of crediting the payee's account or making the payment.
One update to note up front: under the Income-tax Act 2025, Section 194J is renumbered as Section 393(1) with effect from 1 April 2026, and TDS returns now use payment codes instead of the old section numbers.
The rates and thresholds themselves have not changed.
This guide covers the rates, the threshold, who must deduct, how to calculate and deposit the tax, how 194J differs from Sections 194C and 195, and what a professional receiving fees from abroad needs to know.
| Payment covered by Section 194J | TDS rate |
|---|---|
| Professional services, Section 194J(b) | 10% |
| Fees for technical services (FTS), Section 194J(a) | 2% |
| Call-centre operator | 2% |
| Royalty on cinematographic films | 2% |
| Royalty (other) and non-compete fees | 10% |
| Director's remuneration or sitting fees, non-salary | 10% |
| Payee has no valid PAN, Section 206AA | 20% |
What is Section 194J?
Section 194J requires a payer to deduct tax at source before paying certain fees to a resident.
It exists so the tax on high-value professional and technical income is collected as the income is earned, rather than only at the year-end.
It covers five broad payment types:
- Professional services, such as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration and advertising work.
- Fees for technical services (FTS), meaning managerial, technical or consultancy services that are not professional in the above sense.
- Royalty, for the use of patents, copyrights, trademarks, designs or similar rights.
- Non-compete fees paid under Section 28(va) for agreeing not to carry on a business or profession.
- Director's remuneration or sitting fees that are not treated as salary.
The distinction between "professional" and "technical" is not academic, because it decides whether you deduct 10% or 2%. That single classification is the most common source of error on this section, so it is worth getting right before you pay.
What counts as professional versus technical services?
Because the rate hinges on this split, it helps to see what falls on each side.
Professional services, deducted at 10%, typically include:
- Legal, medical and accountancy work, the classic professions where a qualification and personal judgment drive the fee.
- Engineering, architectural and interior-design services, where the output is a designed or certified deliverable.
- Technical consultancy, advertising, and notified callings such as film artists and company secretaries, which the section brings in specifically.
Fees for technical services, deducted at 2%, typically include:
- Managerial and technical support, where the service keeps an operation running rather than exercising a profession.
- Consultancy that is technical rather than professional in character, a fine but real distinction.
- Call-centre operations, singled out for the lower 2% rate.
The dividing line is not always obvious, and one contract can carry both. When it genuinely mixes the two, split the invoice so each part carries its own rate.
When you cannot tell, the conservative choice is to treat the fee as professional at 10%, because under-deduction attracts the heavier penalty than over-deduction.
What is the TDS rate under Section 194J?
The rate depends entirely on the category of payment, which is why the rate table above matters more than a single headline number.
- 10% applies to professional services, royalty other than on films, non-compete fees, and director's remuneration. This is Section 194J(b).
- 2% applies to fees for technical services, payments to call-centre operators, and royalty on the sale, distribution or exhibition of cinematographic films. This is Section 194J(a), and the lower rate has applied since 1 June 2017.
- 20% applies when the payee does not give a valid PAN, under Section 206AA, regardless of the category.
So a legal or accountancy fee is deducted at 10%, while a purely technical or call-centre service is deducted at 2%.
If a single contract mixes both, the safer practice is to split the invoice by nature of work, so each part carries its correct rate rather than the higher one applying to everything.
What is the threshold limit for TDS on professional fees?
You deduct TDS under Section 194J only once your payments to a payee cross the exemption limit for the year.
- The limit is ₹50,000 per financial year, with effect from 1 April 2025 (FY 2025-26). It was ₹30,000 until then, so older guides that still cite ₹30,000 are out of date.
- It is counted per category, aggregated across the year, not per bill. If you pay the same consultant ₹20,000 three times, you have crossed ₹50,000 and TDS applies.
- Once you cross the limit, TDS applies to the whole amount, not only the part above ₹50,000.
- Director's remuneration has no threshold. TDS is deducted from the first rupee.
A quick worked case makes the aggregation rule clear.
If you pay an architect ₹30,000 in June and ₹30,000 in September, no TDS is due on the June bill, but the September payment takes the yearly total to ₹60,000, so you deduct 10% on the full ₹60,000 at that point.
Who must deduct TDS under Section 194J?
Not every payer has to deduct. The obligation depends on who is paying.
- Companies, firms, LLPs and other entities must deduct on every qualifying payment above the threshold.
- Individuals and HUFs must deduct only if they were subject to a tax audit in the preceding financial year, that is, business turnover above ₹1 crore or professional gross receipts above ₹50 lakh.
- Payments purely for personal use by an individual or HUF are outside Section 194J.
This is why a salaried person hiring a CA for personal tax filing does not deduct TDS, while a business paying the same CA does.
If you are a freelancer or small firm unsure whether the audit condition applies to you, the rules in TDS for freelancers walk through the thresholds.
When to deduct, deposit and report TDS
The compliance calendar is where most penalties come from, so keep these dates in view:
- Deduct at the earlier of crediting the payee's account or making the payment, whichever happens first.
- Deposit the tax with the government by the 7th of the next month. Tax deducted in March can be deposited by 30 April.
- File Form 26Q, the quarterly TDS return for non-salary payments.
- Issue Form 16A to the payee as the TDS certificate.
- The payee sees the credit in their Form 26AS and AIS, which is how they claim it against their own tax.
If you receive professional fees rather than pay them, that Form 26AS entry is your proof of the tax already deducted, so reconcile it before you file.
The Form 26AS statement is where every TDS credit for the year comes together.
How is TDS under Section 194J calculated?
The mechanics are simple once the rate and threshold are fixed. Two nuances trip people up: the GST treatment and the classification.
Worked example 1, a professional fee. A company engages a freelance architect and pays ₹80,000 in the year. Because the total is above ₹50,000, TDS at 10% applies to the whole ₹80,000.
The company deducts ₹8,000, pays the architect ₹72,000, and deposits ₹8,000 by the 7th of the next month.
Worked example 2, technical vs professional. A ₹1,00,000 payment for fees for technical services is deducted at 2%, so ₹2,000. The same ₹1,00,000 as a professional fee would be deducted at 10%, so ₹10,000.
The classification changes the tax five-fold, which is why it matters.
Worked example 3, the GST rule. If the invoice shows ₹1,00,000 as fees plus ₹18,000 GST separately, TDS is deducted on the base ₹1,00,000 only, so ₹10,000.
If the invoice is a single lump sum with no GST split shown, TDS applies to the full value.
Worked example 4, no PAN. If that architect does not provide a valid PAN, the rate becomes 20% under Section 206AA, so ₹16,000 on ₹80,000, not ₹8,000.
Section 194J vs 194C, 194H and 195
Picking the wrong section is as costly as picking the wrong rate. Here is how the common ones differ.
| Section | Applies to | Typical rate |
|---|---|---|
| 194J | Professional or technical fees to a resident | 10% or 2% |
| 194C | Contractor or works-contract payments to a resident | 1% for individual/HUF payee, 2% for others |
| 194H | Commission or brokerage to a resident | 2% |
| 195 | Any payment to a non-resident chargeable to tax in India | Per the Act plus the applicable DTAA |
The line that matters most for a cross-border business is the last one. Section 194J applies only to residents. The moment you pay a foreign professional or consultant, you leave 194J entirely and enter Section 195, where the rate follows the Act and the relevant tax treaty, and where the turnover-based exemption for individual payers does not apply.
If that is your situation, the guide to TDS on foreign payments covers Section 195 and DTAA relief in detail.
Section 194J under the Income-tax Act 2025: the move to Section 393(1)
This is the freshest change and the one most guides have not caught up with. Under the Income-tax Act 2025, the provisions of Section 194J are carried into Section 393(1) with effect from 1 April 2026.
- The section number changes, the substance does not. The 10% and 2% rates, the ₹50,000 threshold and the no-PAN rule all continue as before.
- Returns use payment codes. TDS challans and statements now reference codes rather than old section numbers: technical services, call-centre and film royalty under 1026, professional services under 1027, and director's payments under 1028.
- Old section numbers can fail validation. Filing a return that cites "194J" for a payment made on or after 1 April 2026 can trigger a validation error, so deductors need to map to the new codes.
If you deduct TDS regularly, update your accounting templates to the new codes for the current year, and keep a note of the mapping for your filing team.
What happens if you do not deduct or deposit TDS?
The cost of getting this wrong is deliberately steep, because the tax is meant to be collected at source.
- 30% of the expense is disallowed under Section 40(a)(ia) if you fail to deduct or deposit TDS, which raises your taxable profit. The expense is allowed back in the year you finally pay the TDS.
- Interest runs under Section 201(1A) at 1% per month if tax is not deducted, and 1.5% per month if it is deducted but not deposited.
- Penalty exposure can follow for late filing of the return and for the default itself.
In practice the disallowance is the expensive part, because a missed deduction on a large fee can add far more to your tax bill than the TDS itself.
Can you reduce TDS under Section 194J?
A payee who expects the standard rate to over-deduct against their real liability can apply to the assessing officer for a lower or nil deduction certificate under Section 197.
Once it is granted, the payer deducts at the reduced rate shown in the certificate for its validity period.
- Useful in a loss or thin-margin year, where a flat 10% would lock up cash that comes back only as a refund months later.
- The payer must verify the certificate before applying the lower rate, and deduct normally if none is produced.
- Without a certificate, the payer deducts at the full rate and the payee claims any excess as a refund at filing.
It is worth planning for if your annual TDS routinely runs well above your final tax.
How to show 194J income in your ITR and claim the credit
If you are on the receiving end, TDS deducted under Section 194J is not a cost, it is tax already paid on your behalf.
- Report the gross fee as income, not the net amount you received, because the deduction is your tax credit.
- Claim the TDS credit shown against your PAN in Form 26AS and AIS, which reduces your final liability or produces a refund if excess was deducted.
- File the right return. A professional using presumptive taxation under Section 44ADA generally files ITR-4, as does a small business under Section 44AD, while one keeping full books files ITR-3. The broader position for solo earners sits in the freelancer income tax guide.
- Fold in any foreign fees. If some of your income came from overseas clients, report it too; the guide to foreign remittance in the ITR shows where those receipts belong.
How that overseas income is finally taxed in your hands is a separate question from TDS, and the note on tax on inward remittances sets out the treatment.
Receiving professional fees from foreign clients
Here is the case that neither the statute nor the insurer blogs address, and it is the one that matters if your clients are overseas. Section 194J is a rule for Indian payers paying Indian residents.
A foreign client paying you for professional services does not deduct Indian TDS at all, so the receipt reaches you as a plain inward remittance with no 194J deduction, and you report the whole amount as income in India.
Do not confuse this with the payer's side; the difference between an inward remittance vs outward remittance is exactly the difference between receiving a fee and paying one abroad.
Two things still need handling on that receipt:
- Foreign withholding may apply in the client's own country, which you may be able to relieve under the relevant DTAA. Keep the client's withholding documentation.
- You need clean receipt and proof. Each foreign payment should reach an Indian account with a foreign inward remittance certificate or the electronic advice behind it, the eFIRA, as evidence of the receipt.
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Bottom line
TDS on professional fees under Section 194J is 10% for professional services and 2% for technical services, once payments to a payee cross ₹50,000 in a financial year.
- Classify the payment correctly, because professional at 10% and technical at 2% differ five-fold, and a missing PAN pushes the rate to 20%.
- Deduct at credit or payment, deposit by the 7th of the next month, file Form 26Q, and issue Form 16A.
- Remember that 194J is resident-only; a foreign professional falls under Section 195, and from 1 April 2026 the section itself is renumbered as 393(1).
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Frequently asked questions
It is 10% for professional services and 2% for fees for technical services and call-centre operators. Royalty and non-compete fees are 10%, and if the payee has no PAN the rate is 20%.
₹50,000 per payee per category in a financial year, raised from ₹30,000 with effect from 1 April 2025. Director's remuneration has no threshold and is deducted from the first rupee.
Apply the category rate to the fee once yearly payments cross ₹50,000, and the tax then applies to the whole amount. If GST is shown separately, deduct on the base fee, not the GST.
194C covers contractor and works-contract payments, usually at 1% or 2%. 194J covers professional and technical fees, at 10% or 2%. The nature of the service decides which applies.
A professional using presumptive taxation under Section 44ADA usually files ITR-4, and one keeping full books files ITR-3. Report the gross fee and claim the TDS credit from Form 26AS.
No. Section 194J applies only to residents. A payment to a non-resident falls under Section 195, at the rate set by the Act and the applicable tax treaty.
Under the Income-tax Act 2025, effective 1 April 2026, Section 194J is renumbered as Section 393(1), and TDS returns use payment codes 1026, 1027 and 1028 rather than the old section number.
30% of the expense is disallowed under Section 40(a)(ia) until the TDS is paid, and interest of 1% or 1.5% per month applies under Section 201(1A), along with possible penalties.
