Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194J of the Income-tax Act governs TDS on professional and technical fees.
This guide sets out the TDS rate under Section 194J, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194J?
Section 194J covers TDS on fees for professional services, technical services, royalty and certain other payments.
Rate, threshold and who deducts
| Nature of payment | Professional and technical fees |
|---|---|
| TDS rate | 10% for professional/royalty; 2% for technical services and call-centre operations |
| Threshold | ₹30,000 per category in a financial year |
| Who deducts (deductor) | Payer liable to audit / specified payers |
| Whose income (deductee) | Professional / service provider |
| Time of deduction | At credit or payment, whichever is earlier |
Key points
- The 2% rate for technical services helps distinguish them from professional services taxed at 10%.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on professional and technical fees at credit or payment, whichever is earlier.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194J appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Are freelancer payments covered under 194J?
Payments for professional services (design, consulting, legal, etc.) above ₹30,000 typically attract 194J.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.