Section 194J under the Income Tax Act, 1961 mandates Tax Deducted at Source (TDS) on payments made for professional and technical services to resident individuals or entities. This section requires the payer, excluding individuals and Hindu Undivided Families (HUFs) except under certain turnover conditions, to deduct TDS when paying fees for specific types of services.
Applicability and Scope
- Applies to payments made for professional services such as those provided by doctors, lawyers, architects, chartered accountants, and other notified professions under Section 44AA.
- Covers technical services which require specialized technical knowledge or expertise, including engineering, managerial, consultancy, and IT services.
- Also includes payments for royalties, non-compete fees, directors’ fees (other than salary), and service fees to event managers, coaches, physiotherapists, and sports professionals.
- Individuals/HUFs who had turnover exceeding Rs.1 crore (business) or Rs.50 lakh (profession) in the previous financial year must also deduct TDS under this section.
TDS Under Section 194J(a) & 194J(b)
Payments that are being covered u/s 194J(a)
- Fees for Technical Services
- Call center
- Royalty for sale
- Distribution or exhibition of cinematographic films etc.
Payments that are being covered u/s 194J(b)
- Professional services
- Royalty etc.
Tax Deduction Rate
- Tax deduction rate for u/s 194J(a) is 2% and for 194J(b) is 10%
- In case of payee fails to furnish PAN, he will be liable to pay TDS at the rate of 20%
Threshold Exemption Limit
As per the Budget 2025 update, effective from 1st April 2025, the threshold limit of TDS on Fees for Professional or Technical Services has been increased to Rs. 50,000 from the existing threshold of Rs. 30,000.
In case of payment does not exceed the directed Threshold exemption limits, TDS will not be deductible.
However, Threshold exemption limit is not available only in the case of Fees / Commission / Remuneration paid to director of the company, other than Salary.