TDS on Professional Fees under Section 194J mandates a 10% deduction on professional services and 2% on technical services for payments above ₹30,000. This article covers eligibility, rates, exemptions, filing deadlines, and penalties to ensure compliance and avoid legal issues.
TDS on professional fees is a key compliance requirement under Section 194J of the Income Tax Act, 1961. It ensures that tax is deducted at the time of payment for professional and technical services to prevent tax evasion.
Any business, organization, or individual making payments exceeding ₹30,000 per year for professional services must deduct TDS at 10% before making the payment. For technical services, the applicable TDS rate is 2%.
This article explains who needs to deduct TDS, applicable rates, key exemptions, filing deadlines, and penalties for non-compliance. Understanding these rules is crucial to avoid penalties and ensure seamless tax compliance.
Section 194J
Specifically, section 194J of the Income Tax Act, 1961. stipulates the rules regarding tax deducted at source (TDS) on various technical and professional services fees. As part of the advance tax deduction, TDS is deducted at the applicable rate before the payment for any professional or technical service is completed.
What is the new amendment of 194J?
- Effective Date: Starting from April 1, 2025, the revised TDS rules will come into effect.
- TDS Deduction Threshold: TDS on Professional Fees will only be deducted on fees for professional services and technical services if the payment exceeds ₹50,000 in a financial year.
- Previous Rule: The earlier rule required TDS deduction on payments of ₹30,000 or more in a financial year.
- Updated TDS Threshold: The new TDS threshold simplifies the process for businesses and professionals, reducing the frequency of deductions.
- Impact on Compliance: The amendment aims to lower the tax compliance burden for small businesses and professionals.
- Stay Updated: Ensure you remain compliant with the latest income tax provisions and Section 194J TDS amendments.
What is Required to Deduct TDS?
Every employer is required to deduct TDS on salary at the average rate of income tax applicable to the employee for the year.
The average income tax rate is calculated as:
- Income Tax Liability (calculated based on slab rates)
- Divided by the employee’s projected income for the assessment year.
This ensures that the tax deducted from the employee’s salary aligns with their expected tax liability, considering the applicable income tax slab.
What is professional or technical services?
TDS on Professional Fees applies to specific services categorized as professional or technical under Section 194J. Professional services include any service in the following fields:
- Medical
- Legal
- Engineering
- Architectural profession
- Accountancy
- Technical consultancy, or
- Interior decoration
Professional Services mentioned in Section 44AA:
- Film artist
- Authorised representative
- Company Secretary
Professional Services related to Sports Activities:
- Anchors
- Commentators
- Event managers
- Physiotherapists
- Referees and umpires
- Sports persons
- Sports columnists
- Trainers and coaches
Technical Services under Section 194J:
- Technical services: Providing services that involve technical expertise or expertise in technology.
- Managerial services: Running and management of the business of the client
- Consultancy Services: advisory services wherein necessary advice and consultation are given to the clients for their business
- Providing technical or other manpower services: Services involving human resources with specific technical expertise.
How is the Rate of TDS Calculated?
Under Section 194J, all payments falling under TDS on Professional Fees are subject to the following tax rates:
- If the payee (professional/technical services provider) provides a Permanent Account Number (PAN), a flat rate of 10% will be applied to the transaction amount.
- There is a flat rate of 20% on the transaction amount if the payee does not provide the PAN (Permanent Account Number)
- In the case of call centres, the TDS rate is lower, equal to 2% of the transaction value.
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Is There a Limit to TDS on Professional Fees?
A maximum limit of ₹30,000 applies to each item or payment separately. This section also applies to commissions or remuneration or fees paid to the director of a company, even if the amount does not form part of the salary.
In Which Situations Is TDS Not Applicable?
TDS does not apply in the following scenarios:
- Individuals or HUFs who make payments exclusively for personal use are not required to deduct tax. The individual can apply to assess officers for no TDS or TDS at a lower rate under Section 197.
- No tax is required to be deducted where the amount of such sum or the aggregate of the amounts of such sums during the financial year does not exceed ₹30,000
Special Cases
- Maintenance Contracts: Payments for routine maintenance contracts (including the supply of spare parts) fall under Section 194C for TDS deduction. However, if the payment involves technical services rather than standard maintenance, it will be subject to TDS on Professional Fees under Section 194J.
- Recruitment Agencies: Payments made to recruitment agencies (like Monster India or Naukri.com, etc.) will be subject to the TDS outlined in section 194J.
- On GST: TDS is applicable only if the value of GST is separately stated on the bill under this section (excluding GST).
- Media House: Media houses that pay commissions to advertising agencies are liable for TDS under section 194J.
When Must You Deposit and File TDS?
The following are the deadlines for depositing TDS with the government :
| Period | Time limit to deposit TDS |
| Paid in the month of March | On/before 30th April |
| Paid in a month other than March | Deductions are made within 7 days of the end of the month |
Filing TDS Returns FY 2025-26
TDS must be deposited with the government and a quarterly TDS return on form 26Q must be made.
| Period | Due Date |
| April – June | 31st July |
| July – September | 31st October |
| October-December | 31st January |
| January – March | 31st May |
What are the Penalties for Non-compliance?
Section 194J of the Income Tax Act of 1961 outlines several penalties that can be imposed if a person or business receiving services forgets to deduct TDS on Professional Fees or makes late TDS payments to the government. Some of the punishments that may be imposed are as follows:
- Reduced Tax Benefit instead of Expenditure
If an individual or company fails to deduct TDS, 30 percent of their expenditure for the services obtained will be disallowed for the corresponding financial year. In practice, a tax assessor can only claim the full tax benefits of expenses after deducting and paying TDS to the government on time.
- Interest Until Payment Date
In the event of late payment, the entity or individual must pay the following penalty interest on the due TDS amount:
- If TDS is not deducted, the interest of 1% per month or a fraction of a month is charged from the date on which was to be deducted until the date of actual deduction.
- TDS Deducted but Not Deposited to the Government: From the date, TDS was deducted until the payment to the government, interest is payable at 1.5 per cent each month or part of a month.
Conclusion:
We hope this article explaining the concepts related to TDS on professional fees educates you well. However, we understand that legal topics like this can be quite confusing. Vakilsearch is a technology-driven platform offering services that cover the legal needs of businesses, right from small startups to large corporations. Our mission is to provide quick services to individuals and businesses for any legal and professional requirements.
