May 12, 2025
6 mins read
Section 194J of the Income Tax Act covers TDS (Tax Deducted at Source) on payments made for professional or technical services. It mandates a deduction of 2%, 10%, or 20%, depending on the nature of the service, if the total payment in a financial year exceeds the prescribed threshold limit. However, if the payee doesn’t furnish their PAN, the applicable TDS rate increases to 20%.
If the deductor fails to deduct or deposit the TDS, the related expense cannot be claimed as a deduction when calculating taxable income. Moreover, interest is levied for delays in deduction or deposit.
In the following sections, we will explore the key rules under Section 194J, including when it applies, applicable TDS rates, latest updates, and consequences of non-compliance.
Section 194J in the Income Tax Act deals with the deduction of tax at source (TDS) on payments that are made to residents for availing professional or technical services, royalty, and non-compete fees. As of FY 2025–26 (AY 2026–27), TDS must be deducted when such payments exceed ₹30,000 in a financial year for each applicable category.
This provision applies to companies, firms, LLPs, cooperative societies, trusts, and government bodies. These entities have to deduct TDS at the applicable rates before paying the fees for the professional services used. Individuals and HUFs are required to make TDS deductions under Section 194J only if they are liable to audit under Section 44AB of the Income Tax Act.
If you’re wondering what section 194J in income tax is, it’s the clause that mandates deductors to withhold a specified percentage of tax before releasing payments for certain services, thereby ensuring compliance and transparency in tax collection.
The Income Tax Act's Section 194J requires tax deduction at source (TDS) on payments for royalties, technical services, professional services, and some non-compete agreements. When a payment exceeds ₹30,000 in a fiscal year for a specific category, this section applies.
Section 194J TDS need not be deducted when the total amount paid for professional or technical services to a resident does not exceed ₹30,000 in a financial year, category-wise.
Similarly, TDS is not required to be deducted from payments made by individuals or Hindu Undivided Families whose business or professional turnover falls below the audit threshold set forth in Section 44AB. Payments to Government departments are generally excluded only when income is exempt or when CBDT has specifically clarified non-deduction. This is not a blanket exemption.
Under Section 194J, any person, other than an individual or Hindu Undivided Family (HUF) not liable for audit under Section 44AB, who makes payments for professional or technical services to a resident must deduct TDS. In addition, individuals and HUFs whose business or professional gross receipts exceed the audit threshold specified in Section 44AB during the preceding financial year are also obligated to deduct TDS under this provision. The term “person” in this context covers a wide range of entities, including:
Central or State Government bodies
Local authorities such as municipalities or panchayats
Statutory corporations and government agencies
Public or private companies
Cooperative societies registered under any State Act
Trusts, whether charitable or private
Universities and educational institutions
Registered societies and associations
Partnership firms
Individuals, HUFs, Associations of Persons (AOP), and Bodies of Individuals (BOI) that meet the audit requirements under Section 44AB
Each of these entities must ensure timely deduction and deposit of TDS on professional or technical service fees paid during the financial year.
TDS under Section 194J becomes applicable when the total amount paid or credited to a resident exceeds ₹30,000 for any of the following categories:
Fees for professional services
Fees for technical services
Royalty payments
Non-compete fees
Remuneration or commission to directors (not covered under salary)
Eligible deductors include entities such as companies, partnership firms, cooperative societies, local authorities, and associations of persons. Individuals and HUFs are required to deduct TDS under Section 194J only if they were liable to a tax audit under Section 44AB in the immediately preceding financial year.
This refers to services offered by individuals such as doctors, lawyers, engineers, architects, interior designers, accountants, and consultants. It also covers professionals notified under Section 44AA, like authors, film artists, company secretaries, and media professionals, including journalists and news anchors. Payments made for these services attract TDS under Section 194J if the value crosses the prescribed limit.
These services include consultancy, managerial input, or any form of technical expertise provided to a business. Examples may include IT consulting, software programming, application development, and support-related services. The scope is broad and applies to fields where specialised technical knowledge is applied in exchange for a fee.
Royalty covers payments made for the use of intellectual property such as copyrights, trademarks, patents, and licenses. It also includes payments made for sharing or transferring technical or commercial knowledge, formulas, or processes. These transactions are covered under Section 194J if the amount surpasses the threshold.
These are payments made under an agreement to prevent a party from entering into competition or sharing proprietary information. The amount paid to restrict business competition or knowledge-sharing is subject to TDS under Section 194J, depending on the nature and terms of the agreement.
Non-salary payments to company directors, such as sitting fees, commission, or professional charges, fall under the purview of Section 194J. These are not treated as salary income and are therefore liable for TDS deduction if they meet the applicable criteria.
The TDS rates under Section 194J are outlined below:
Nature of Payment | TDS Rate | Threshold Limit |
Fees for Technical Services, Call Centres | 2% | ₹30,000 |
Royalty (film-related) | 2% | ₹30,000 |
Professional Services, Other Royalties | 10% | ₹30,000 |
Director’s Remuneration (non-salary) | 10% | No threshold |
If PAN is not provided | 20% | ₹30,000 (except director fees) |
Under Section 194J of the Income Tax Act, the meaning of professional and technical services is clearly defined for the purpose of tax deduction. Professional services typically involve work carried out by individuals with specialised qualifications or expertise in specific fields. On the other hand, technical services refer to managerial, consultancy, or support services involving specific technical knowledge or experience.
Legal Services
Medical Services
Engineering Services
Architectural Services
Accountancy or Technical Consultancy Services
Interior Decoration Services
Advertising Services
Notified Professions (including those related to sports like umpires, coaches, commentators, physiotherapists, and similar professionals)
Managerial services
Technical services
Consultancy services (including any service where technical or professional knowledge is shared)
However, it does not include consideration for:
Construction
Assembly
Mining
Projects taxed as salary under the head “Salaries”
This distinction is important for determining when TDS under Section 194J applies.
For non-government deductors, TDS under Section 194J must be deposited within 7 days from the end of the month in which the deduction is made. However, for deductions made in the month of March, the due date is extended to April 30.
Government deductors (without challan) → deposit same day
With challan → 7th of next month
April 30 deadline applies ONLY to non-government deductors
If you fail to comply with provisions under Section 194J, you may have to face the following consequences:
Disallowance of expense: 30% of the expense may be disallowed under Section 40(a)(ia) if TDS is not deducted or deposited on time.
Interest:
1% per month for non-deduction
1.5% per month for late payment after deduction
Penalty:
Equal to the TDS amount under Section 271C
Additional penalties under Section 221 for delayed payment
Prosecution:
Imprisonment from 3 months up to 7 years for wilful default in depositing TDS
Tax is deductible under Section 194J only if the payment to a resident exceeds ₹30,000 in a financial year for each category of service separately. Payments across different categories are not aggregated to determine TDS applicability.
This threshold is not cumulative for all services but is applied individually for each nature of service, such as professional fees, technical service charges, royalty payments, or non-compete fees.
Let’s understand this with an example:
ABC Ltd made the following payments to Ms. R:
Particulars | Amount |
Professional services | ₹18,000 |
Royalty payment | ₹14,000 |
Total payment | ₹32,000 |
In this case, ABC Ltd is not liable to deduct TDS under Section 194J because both payments are for different categories and each is below the ₹30,000 threshold. Even though the total payment is over ₹30,000, TDS does not apply unless an individual category crosses the prescribed limit.
To avoid fines, it's critical to make sure that TDS is deposited on time. The seventh of the month after the deduction is made is typically the deadline for depositing TDS. The deadline for March deductions has been extended to April 30.
194J TDS Rate Table:
Nature of Payment | TDS Rate |
Fees for technical services | 2% |
Call centre services | 2% |
Royalty for sale, distribution, or exhibition of cinematographic films | 2% |
Professional services, non-compete fees, director fees (non-salary) | 10% |
PAN not furnished | 20% |
The time period for depositing TDS under Section 194J relies on the type of deductor, whether government or non-government, and the month in which the payment is made. In most cases, the deducted TDS must be deposited by the 7th of the following month. However, for payments made in March, there is an extended deadline to accommodate the closing of the financial year.
Payment Period | Non-Government Deductors | Government Deductors |
Before March | By 7th of next month | Same day (without challan) / 7th of next month (with challan) |
March | 30th April | Same day (without challan) / 30th April (with challan) |
Section 194J does not apply in certain situations where payments do not meet the prescribed conditions or fall under other provisions of the Income Tax Act. Understanding these exclusions helps ensure correct TDS compliance.
Payments made by an individual or Hindu Undivided Family for personal or domestic purposes are not subject to TDS under Section 194J. The provision applies only to payments connected with business or professional activities.
Section 194J applies only to payments made to residents. Payments made to non-residents for professional, technical, royalty, or similar services are governed by Section 195, not Section 194J.
TDS under Section 194J is not required if the payment to a particular payee for a specific category of service does not exceed ₹30,000 in a financial year.
This threshold is applied per payee and per nature of payment and is not aggregated across different categories or recipients.
Individuals and HUFs are required to deduct TDS under Section 194J only if they were liable to tax audit under Section 44AB in the preceding financial year.
If they are not subject to audit, they are not required to deduct TDS under this section, even if payment limits are exceeded.
The Central Board of Direct Taxes (CBDT) has issued clarifications to help deductors correctly identify when Section 194J applies.
Payments for routine or mechanical maintenance services, including the supply of spare parts, fall under Section 194C.
However, if the contract involves technical services such as system diagnostics, specialised software maintenance, or technical configuration, Section 194J applies.
Payments made to recruitment or placement agencies for sourcing candidates are treated as professional services. Such payments are liable to TDS under Section 194J.
TDS under Section 194J should be calculated excluding GST, provided the GST amount is shown separately in the invoice.
If GST is not separately mentioned, TDS must be deducted on the entire invoice value.
Payments made to advertising agencies for advertisement placement, media buying, or related services are generally treated as contractual payments and are covered under Section 194C, not Section 194J.
Section 194J applies only when services rendered are in the nature of independent professional or technical services.
The TDS statement, in the form of Form 16A, must be issued by the deductor—i.e., the person or entity making the payment and responsible for deducting TDS under Section 194J. This certificate is provided to the deductee, whose income is subject to TDS. It serves as proof of tax deducted and deposited with the government. The issuance of Form 16A must adhere to specific quarterly deadlines as shown below:
Particulars | Due Date |
April – June | 15th August |
July – September | 15th November |
October – December | 15th February |
January – March | 15th June |
If a person liable to deduct TDS under Section 194J fails to do so or deducts it late, they may be held accountable by tax authorities. In such cases, not only is interest charged, but there can also be penalties and prosecution depending on the severity and duration of the default.
As per Section 40(a)(ia) of the Income Tax Act, if TDS is not deducted on a payment liable for tax deduction at source, 30% of such expenditure may be disallowed while computing taxable income. This applies even if the expense is genuine. It remains disallowed until the TDS is deducted and deposited, impacting the deductor’s tax liability for that financial year.
When TDS is not deducted on time or deducted but not deposited with the government within the prescribed due dates, interest becomes payable. Interest is levied at 1% per month for delay in deduction and 1.5% per month for delay in deposit, calculated from the due date till the actual date of deduction or payment. This amount must be paid before filing TDS returns.
In addition to interest, a penalty may be imposed under Section 271C of the Income Tax Act if a deductor fails to deduct TDS without a valid reason. The penalty amount can be equal to the amount of TDS not deducted. The penalty is imposed only after giving the deductor a chance to explain the reason for default and is subject to discretion by tax authorities.
The deductor may be prosecuted under Section 276B in severe circumstances where TDS is either not deducted at all or deducted but not paid to the government. This can lead to a fine and a maximum sentence of 3 months to 7 years with fine in prison. However, this is usually not applied to small or infrequent errors, but rather to deliberate or persistent defaulters.
Consultancy Fees: Payments made to consultants, strategy advisors, management professionals, or industry experts are subject to TDS under Section 194J.
Legal Fees: Payments to lawyers, legal advisors, or law firms for opinions, documentation, or representation attract TDS.
Medical Services: Payments to doctors, specialists, or medical practitioners for professional services are covered under this section.
Technical Services: Includes payments for IT support, software maintenance, system design, or technical troubleshooting.
Professional Contracts: Engagements involving architects, engineers, chartered accountants, and interior designers fall under the scope of 194J.
Commission Payments: If commissions are paid to agents, brokers, or intermediaries for bringing in business or facilitating deals, TDS may be applicable.
Honorarium or Guest Fees: Payments made to guest speakers, trainers, or panelists for events or seminars can attract TDS under professional services.
Recent updates to Section 194J have introduced clearer rates and conditions for TDS deduction. TDS on payments for technical services and call centre operations has been set at 2%, while professional services continue to attract a 10% rate. The threshold limit remains the same at ₹30,000 per financial year.
Furthermore, it has been clarified that payments for professional services are not to be treated as contract work under Section 194C. Individuals and HUFs are required to undertake TDS deduction under this section only if they fall under mandatory tax audit provisions. These amendments aim to streamline compliance and eliminate confusion between similar TDS sections.
Additional Read: What is Section 194IB
Now that you know what Section 194J in income tax is, let’s understand how it is different from other TDS sections. The differences between Section 194J and a few other sections are listed in the table below:
Section | Nature of Payment | TDS Rate | Applicability |
194C | Work contracts | 1% / 2% | Labour, job work, material contracts |
194H | Commission/Brokerage | 5% | Agency & brokerage payments |
194I | Rent | 2% / 10% | Rent exceeding ₹2.4 lakh/year |
194J | Professional / Technical Fees | 2% or 10% (20% only if no PAN) | Service-based payments |
Additional Read: What is Section 194K?
Section 194J is a critical TDS provision for professionals, service providers, and businesses. If you are making qualifying payments exceeding ₹30,000 per category in a financial year, ensure you deduct and deposit TDS correctly to stay compliant.
Understanding Section 194J, applying the correct TDS rates, and avoiding misclassification can help ensure compliance with applicable income tax provisions.
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It mandates TDS on specified service payments like professional or technical fees, royalties, and non-compete fees if the amount exceeds ₹30,000.
Any person other than an individual or HUF, unless subject to audit under Section 44AB, making eligible payments to residents.
2% for technical services and call centres, 10% for professional services and royalties, and 20% if PAN is not provided.
Yes. ₹30,000 per financial year, per category of payment. No limit applies for director remuneration.
The various kinds of payments included under this section are fees for technical and professional services, royalties, the director’s sitting fees or commissions, and non-compete payments.
30% of the expense may be disallowed. You may also face interest, penalty, and prosecution for non-compliance.
Yes. New threshold, clarified categorisation, revised rates for specific services, and stricter classification effective from FY 2025–26.
It applies specifically to professional and technical service payments, unlike Sections 194C (contracts) or 194I (rent).
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