Section 194J of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on payments made for professional or technical services, ensuring tax compliance on such transactions. Below is a structured breakdown of its provisions:
1. Applicability of Section 194J
✅ Covered Payments:
- Professional Services:
- Legal, medical, engineering, architectural, accountancy, consultancy, etc.
- Royalties(e.g., technical know-how, copyrights, patents).
- Non-compete fees(treated as professional income).
- Technical Services:
- IT services, technical consultancy, testing, certification, etc.
❌ Exclusions:
- Salaries(covered under Section 192).
- Payments to non-residents(covered under Section 195).
- Transactions below ₹30,000/year(per payee).
2. TDS Rates & Thresholds
| PAYMENT TYPE | TDS RATE (PAN PROVIDED) | TDS RATE (PAN NOT PROVIDED) |
| Professional Fees | 10% (reduced from 10% to **2% for MSMEs from April 2025*) | 20% |
| Royalties (Technical Know-How) | 10% | 20% |
| Non-Compete Fees | 10% | 20% |
| Threshold | ₹30,000/year per payee (aggregate) |
Example:
- Payment: ₹50,000 (professional fees, PAN provided).
- TDS (10%): ₹5,000 → Net Payment: ₹45,000.
3. Who Must Deduct TDS?
- Companies, firms, individuals, or HUFsmaking payments for professional/technical services.
- Government departments(if payment exceeds threshold).
4. Compliance Requirements
- TDS Deduction: At the earlier of:
- Credit to payee’s account.
- Actual payment (cash/cheque/online).
- TDS Deposit: By the 7th of the next month(March: April 30).
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato payee within 15 days of filing.
5. Exemptions & Lower TDS
- No TDSif annual payment ≤ ₹30,000.
- Form 15G/15H: If payee’s income is below taxable limits.
- Lower TDS Certificate (Form 13): Obtain from the Assessing Officer if justified.
6. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing (Form 26Q): Penalty up to ₹1 lakh.
7. Key Changes (Budget 2025)
- Reduced TDS for MSMEs: From 10% → 2%(if payee is a registered MSME).
- Threshold Rationalization: Proposed increase from ₹30,000 to ₹50,000/year.
8. Key Points
✅ 10% TDS (2% for MSMEs) on professional/technical fees > ₹30K/year.
✅ PAN Mandatory to avoid 20% deduction.
✅ Quarterly Filing: Use Form 26Q.
✅ Royalties & Non-Compete Fees also covered.
