Section 194J of the Income Tax Act, 1961 mandates Tax Deduction at Source (TDS) on specified payments made to residents for:
- Professional services
- Technical services
- Royalty
- Non-compete fees
- Director’s sitting fees or remuneration (other than salary)
🔎Objective: To ensure early tax collection and widen the tax base by taxing service professionals at the source.
⚠️This section applies only to payments made to residents. For non-residents, refer to Section 195.
Who is Liable to Deduct TDS under Section 194J?
Any person (including individuals and HUFs covered under tax audit) who pays the specified nature of sums to a resident is required to deduct TDS.
| Category of Payer | Required to Deduct TDS? |
| Company, Firm, LLP | ✅ Yes |
| Individual / HUF (subject to tax audit u/s 44AB in preceding FY) | ✅ Yes |
| Individual / HUF (not subject to tax audit) | ❌ No |
| Government, Local Authority, Trust | ✅ Yes |
- Nature of Payments Covered under Section 194J
TDS applies to the following 5 categories of payments:
- a) Fees for Professional Services
- Legal, medical, engineering, accountancy, architecture, interior design, consultancy, etc.
- Includes services by film artists, company secretaries, cost accountants, etc.
- b) Fees for Technical Services
- Services requiring technical, managerial, or consultancy skills
- Excludes: Construction, mining, assembly, or mere supply of manpower
- c) Royalty
- Covers use of intellectual property, trademarks, patents, copyrights, etc.
- d) Non-compete Fees
- Payments made for not sharing technical know-how or trade secrets
- Or for not engaging in competing business
- e) Director’s Remuneration (non-salary)
- Sitting fees, professional fees, commission, or bonus (other than salary)
📌Clarification: TDS u/s 194J is NOT applicable on salary paid to directors – that falls under Section 192.
Threshold Limits for TDS under Section 194J
| Nature of Payment | Annual Threshold per Payee |
| Professional Services | ₹50,000 |
| Technical Services | ₹50,000 |
| Royalty | ₹50,000 |
| Non-compete Fees | ₹50,000 |
| Director’s Fees | No threshold (Even ₹1 is taxable) |
🔔 Threshold is checked PAN-wise per financial year.
📊 5. TDS Rates Under Section 194J (AY 2025-26)
| Payment Type | TDS Rate | Notes |
| Professional Services | 10% | Standard |
| Technical Services | 2% | Applicable only to technical services; not to professional |
| Royalty (copyrights, music, books, etc.) | 10% | For literary or artistic works |
| Royalty (other) | 10% | For patents, trademarks, etc. |
| Non-compete Fees | 10% | On full amount paid |
| Director’s Remuneration (non-salary) | 10% | No threshold applies |
⚠️If PAN is not provided by the payee, TDS must be deducted at 20% under Section 206AA.
Time of Deduction of TDS
TDS under Section 194J should be deducted:
- At the time of credit of such amount to the payee’s account,
OR - At the time of payment,
Whichever is earlier.
💡 Even if credited to “Suspense Account,” TDS is applicable.
Due Date for TDS Payment
| Month of Deduction | Due Date of TDS Deposit |
| April to February | 7th of the following month |
| March | 30th April of the following financial year |
Exemptions &Non-Applicability
TDS under Section 194J is not required:
✅ When payment to a resident does not exceed ₹50,000 per annum (for all except directors)
✅ When made by an Individual/HUF not liable for tax audit
✅ When only reimbursement of expense is made (and no service fee)
✅ On GST component separately mentioned on invoice (CBDT Circular No. 23/2017)
✅ For payments to non-residents (Section 195 applies instead)
Legal Backing and Circulars
- Section 194J – Income Tax Act, 1961
- Explanation to Section 9(1)(vi) – For royalty definition
- CBDT Circular 715 (1995) – Clarifies services covered
- CBDT Circular 202/2016 – Separate rate for technical services
- CBDT Circular 23/2017 – TDS not on GST portion
Consequences of Non-Compliance
| Default | Consequences |
| Failure to deduct TDS | Disallowance u/s 40(a)(ia); interest @ 1% p.m. |
| TDS deducted but not paid | Interest @ 1.5% per month; penalty u/s 221 |
| Late return filing | Late fee @ ₹200/day (u/s 234E); Penalty u/s 271H |
| Non-issuance of TDS certificate | Penalty u/s 272A – ₹100/day |
Real-life Scenarios (Illustrative)
✳️ Example 1: Professional Fee
ABC Ltd pays ₹80,000 to a Chartered Accountant for consultancy.
✅ TDS = 10% of ₹80,000 = ₹8,000
✳️ Example 2: Technical Services
XYZ Pvt Ltd hires a software developer (not an employee) for a project and pays ₹60,000.
✅ TDS = 2% of ₹60,000 = ₹1,200
✳️ Example 3: Director Sitting Fee
Director receives ₹25,000 as sitting fee.
✅ TDS = 10% of ₹25,000 = ₹2,500
(No threshold, TDS mandatory)
Latest Updates / Practical Tips
✅ Use correct PAN and name matching with Income Tax database to avoid higher TDS
✅ Link PAN with Aadhaar to avoid inoperative PAN (and 20% TDS)
✅ Use TRACES for downloading TDS certificates and filing returns
✅ Verify invoices for GST component exclusion