Section 194J is a rule in the Income Tax Act that says:
When you pay someone for professional or technical services, you must deduct TDS before making the payment.
This section mostly applies to fees paid to doctors, lawyers, consultants, engineers, IT experts, and other professionals.
Who Must Deduct TDS Under Section 194J?
TDS must be deducted by:
- Companies
- Partnership firms
- Individuals/HUF (only if turnover is over ₹1 crore for business or ₹50 lakh for profession)
Types of Payments Covered
TDS under Section 194J applies to:
- Professional fees – Doctors, lawyers, chartered accountants, architects, designers, consultants, etc.
- Technical services – IT services, software development, technical support
- Royalty – For using intellectual property like patents, trademarks
- Non-compete fees – Paid to someone to not start a similar business
- Director’s remuneration (if not covered under salary)
TDS Rates Under Section 194J
| Type of Service | TDS Rate |
|---|---|
| Professional services | 10% |
| Technical services | 2% |
| Royalty or non-compete fees | 10% |
If PAN is not provided: TDS = 20%
When to Deduct TDS
TDS must be deducted at the time of credit or payment, whichever is earlier.
Threshold Limit
- No TDS if payment is less than ₹30,000 in a financial year per payee per category
- If total exceeds ₹30,000, TDS is deducted on the entire amount
Example
- You pay a software consultant ₹50,000
- TDS = 2% of ₹50,000 = ₹1,000
- You pay ₹49,000 to the consultant and deposit ₹1,000 to the government
How TDS is Reported
- File TDS returns in Form 26Q
- Issue Form 16A to the service provider as TDS certificate
