TDS Rates under Section 194J

Who is Required to Deduct TDS u/s 194J?

Section 194J requires TDS deduction on fees paid for professional or technical services to residents. Any person, except individuals or Hindu Undivided Families (HUFs) not covered under tax audit u/s 44AB in the previous FY, must deduct TDS.

Individuals or HUFs must deduct TDS only if they are liable for audit u/s 44AB (a) and (b). “Person” includes:

• Central or State Government

• Local Authorities

• Universities and Registered Societies

• Firms

• Corporations and Companies

• Cooperative Societies and Trusts

• Individuals/HUFs/AOPs/BOIs subject to audit u/s 44AB (a) & (b)

Exemptions from TDS u/s 194J

• Individuals or UFs with business turnover less than or equal to Rs.1 crore in the previous financial year.

• Individuals or HUFs practicing a profession with gross receipts less than or equal to Rs.50 lakh in the previous financial year.

• All entities except non-audit liable individuals or HUFs must deduct TDS.

• Section 194M may still be relevant if Section 194J does not apply.

Types of payments covered under Section 194J

An individual should deduct TDS at the rate of 10% when the following payments are made to a resident, in a fiscal year (higher than Rs.30,000):

• Amount charged as professional services fee
• Amount charged as technical service fee
• Non-compete fee according to the Income Tax Act of Section 28(VA)
• Royalty
• Remuneration paid to directors with the exception of salary

List of Professional Services under Section 194J

Professional Services

• Services, such as medical, legal, architectural, or engineering professions.

• Includes any profession notified by the CBDT under Section 44AA.

Notified professions include

• Film artist, Accountancy, Advertising, Company secretary, Interior decoration, technical consultancy

• Authorized representatives, Information technology services

• CBDT additionally notified other professions under Section 194J, such as sportspersons, commentators, event managers, anchors, umpires, referees, physiotherapists, coaches, trainers, team physicians, and sports columnists.

Technical Services

• Fees for managerial, technical, or consultancy services (excluding salary).

• Technical services that involve technical or technology expertise.

• Managerial services running and management of client’s business.

• Consultancy services providing guidance for client’s business.

• Services by machines or robots are excluded (Supreme Court).

Royalty

Payment for:

• Transfer or use of rights, patents, trademarks, designs, and inventions.

• Information on inventions, patents, formulas, or scientific findings.

• Literary works, films, or videotapes for radio broadcasting (not including sale or exhibition of cinematographic films).

• Technical, industrial, commercial, or scientific knowledge, experience, or skill.

Non-Compete Fees

Payment made in cash or kind for agreements restricting the recipient from using or sharing

• Licenses, patents, trademarks, franchises, know-how, commercial or business rights.

• Information used for manufacturing, processing, or other provisional services.

Specific Cases Where TDS u/s 194J Applies

• Payments made to registrars for data exchange services.

• Payments for medical services provided by hospitals.

• Professional fees paid by film artists to publicity companies.

• Fees payment to management firms and HR consulting firms.

Time Limit for Deposit of TDS

You are required to deposit your TDS within a stipulated time frame:

Special Considerations by CBDT Circular on Section 194J

Here are the details regarding special considerations by CBDT circular on TDS (Tax Deducted at Source) under section194J:

Routine Maintenance Contracts

• TDS under section 194C covers payments for routine maintenance, including supply of spares.

• Section 194J applies if the payment involves technical services.

Recruitment Agencies: Payments made to recruitment agencies are subject to TDS under Section 194J.

TDS on GST Amount: Applies only to the amount excluding GST, provided GST is shown separately on the bill.

Media House Payments: Commissions paid by media houses to advertising agencies are liable for TDS under Section 194J.

Threshold limit for Deducting Tax

The threshold limit for deducting tax under section 194J is as follows:

• TDS is applicable only if the payment exceeds Rs.50,000 in a financial year.

• The Rs.50,000 limit applies separately to each category of payment professional fees, technical services fees, royalty, and non-compete fees 

Example:

• Royalty: Rs.45,000

• Technical services: Rs.20,000

• No TDS is deducted, as neither payment exceeds Rs.50,000 individually.

Exception – Director Payments

• No threshold limit applies to payments made to company directors.

• TDS must be deducted on fees, commission, or remuneration (excluding salary), regardless of the amount.

Recent Update: The threshold limit was increased to Rs.50,000 from Rs.30,000, which is in effect from 1 April 2025.

Tax Deduction Rates under Section 194J

The tax deduction rates under Section 194J are mentioned in the table below:

Time Limit for Filing Returns under Section 194J

After you deposit the TDS to the government, you must file a quarterly TDS return in form 26Q. The deadlines are listed below:

When is TDS Statement Issued under Section 194J

The person designated for deducting TDS issues the TDS statement, also referred to as Form 16A. The deductee, or the person whose TDS is deducted from their income, receives Form 16A. The due dates to issue the TDS certificate are listed below:

Recent Amendments to Section 194J TDS

The recent amendments to TDS under section 194J:

Updated TDS Rates

• Specialised or technical services: 2%

• Other payments (e.g., professional fees, royalty, directors’ remuneration): 10%

Revised Threshold Limit

• Effective FY 2025‑26, TDS threshold increased from Rs.30,000 to Rs.50,000 per financial year (FY).

• Provides compliance relief for small-scale service transactions.

Applicability for Individuals and HUFs: Must deduct TDS if turnover exceeds Rs.1 crore from business or Rs.50 lakh from profession in the previous FY.

Clarification on Section 194C

• Under Section 194C, payments under Section 194J will not be classified as "work”, effective from 1 October 2024.

• Prevents misapplication of tax provisions for professional or technical payments.

Consequences of Non‑Compliance Under Section 194J

The consequences of non-compliance under section 194J are mentioned below.

Disallowance of Expenses

• Failure to deduct TDS can lead to 30% disallowance of the related business or professional expense.

• The disallowed amount is reallowed in the year of compliance, once TDS is deducted and deposited.

Interest on non-compliance

• Failure to Deduct TDS: 1% per month from the due date until TDS is deducted.

• Failure to Deposit TDS: 1.5% per month from the date of deduction until payment to the government.

Legal and Financial Implications

• Late or non-deduction can attract penalties, interest charges, or disallowance of expenses.

• Timely compliance ensures avoidance of unnecessary liabilities for businesses and professionals.

Applying for TDS at a Lower Rate

According to Section 197, the person receiving payment can apply for a reduction of rate in TDS, by filling in Form 13 and sending it to the assessing officer. If approved by the officer, a certificate stating a deduction in the TDS is issued to the assessee.

Exemption of Section 194J Applicability Under the Income Tax Act

The exemption on applicability of Section 194J under Income Tax Act is given below:

• Payments made by individuals or HUF for personal purposes.

• Payments to non-resident contractors or sub-contractors.

• TDS (Tax Deducted at Source) not applicable if the total payment in a financial year (or a single transaction) is not more than Rs.30,000.

• TDS deduction is exempted for individuals or HUFs on royalty and non-compete fees even if those are commercial payments.