🎉Now on Google Play! Get it on Google Play
Get Expert Advice

Last updated on: July 29, 2025

Quick Summary

Section 194J of the Income Tax Act, 1961 mandates the deduction of tax at source (TDS) on payments made towards fees for professional or technical services, royalty, non-compete fees, and director’s remuneration (excluding salary). Payers, excluding individuals and HUFs not subject to tax audit, must deduct TDS at 10% (or 2% for technical services) when the aggregate payment to a resident exceeds ₹30,000 in a financial year. The deducted TDS must be deposited with the government within specified timelines, and appropriate TDS certificates (Form 16A) should be issued to the payee. Non-compliance can attract interest and penalties. Section 194J thus ensures tax compliance and transparency in payments made for professional and technical expertise.

Prem Anand Author
Prem Anand
Prem Anand
VIP CONTRIBUTOR
Prem Anand
10+ years Experienced content writer specializing in Banking, Financial Services, and Insurance sectors. Proven track record of producing compelling, industry-specific content. Expertise in crafting informative articles, blog posts, and marketing materials. Strong grasp of industry terminology and regulations.
LinkedIn Logo Read Bio
Prem Anand Reviewed by
GuruMoorthy A
Prem Anand
Founder and CEO
Gurumoorthy Anthony Das
With over 20 years of experience in the BFSI sector, our Founder & MD brings deep expertise in financial services, backed by strong experience. As the visionary behind Fincover, a rapidly growing online financial marketplace, he is committed to revolutionizing the way individuals access and manage their financial needs.
LinkedIn Logo Read Bio
9 min read
Views: Loading...

Section 194J: A Comprehensive Guide to TDS on Professional and Technical Services for 2025

Section 194J of the Income Tax Act, 1961 is one of the most significant provisions affecting professionals, consultants, and businesses in India when it comes to Tax Deducted at Source (TDS) obligations in 2025. With rapid growth in gig economy and freelance services, understanding Section 194J, its scope, and compliance requirements is essential for individuals and businesses alike.

This article offers a complete overview of Section 194J, covering its key features, updated rates, applicability, first-hand practical insights, as well as examples to clarify how TDS on professional and technical services works in India.


What is Section 194J and Why is It Important in 2025?

What types of payments attract TDS under Section 194J?

As per Section 194J, any person (except individuals or HUFs not liable to tax audit) making payments to a resident for certain specified services must deduct TDS at prescribed rates. Payments covered include fees for professional services, technical services, royalty, and non-compete fees.

For 2025, the relevance of Section 194J has grown as more Indian companies and startups rely on experts, consultants, and domain specialists. It ensures timely tax collection from professionals and also streamlines tax compliance for businesses.

Key highlights of Section 194J for 2025:

  • Who needs to deduct TDS: All businesses and professionals (excluding individuals and HUFs not under tax audit) making payments on qualifying services
  • When to deduct: At the time of credit or payment, whichever is earlier
  • Where it applies: For payments to Indian residents only

People also ask:
Q: Is TDS under Section 194J applicable for services provided outside India?
A: No, Section 194J applies only when payment is made to a resident of India for the specified services.


What are Professional Services Covered under Section 194J?

Which professions and services are listed under Section 194J?

Section 194J covers a wide range of services beyond just consultancy. The main categories include:

  • Professional services: Legal, medical, engineering, architectural, accountancy, technical consulting, interior decoration, advertising, film artists, company secretaries, and information technology.
  • Technical services: Managerial, technical, or consultancy services (excluding those covered under Section 192, i.e., employer-employee relationship)
  • Royalty: As defined under the Income Tax Act
  • Non-compete fees: Payments for not sharing know-how, patents, trademarks, copyright, or any commercial rights

These categories have expanded over the years as new types of freelance and consulting roles emerge, making it important to evaluate each payment’s nature before applying TDS.

Key features to note:

  • TDS applies even if the service is delivered digitally or remotely.
  • Payments for technical testing, software development, financial advisory, managerial support, or research & analysis can all fall under Section 194J.
  • Payments to doctors, lawyers, CA, architects, and all others mentioned explicitly as professionals.

Did you know?
From FY 2025, several online marketplaces have started automatically deducting TDS under Section 194J for platform-based consulting payments to ensure compliance.


How are TDS Rates and Thresholds Defined under Section 194J in 2025?

What are the updated TDS rates for Section 194J?

For the financial year 2025, the following TDS rates and thresholds are applicable:

Category of PaymentTDS Rate (as of 2025)Minimum Threshold per annum (INR)
Professional services10 percent30000
Technical services2 percent30000
Royalty and non-compete fees10 percent30000

Key Highlights:

  • No surcharge/cess on TDS: Only the basic rate applies at deduction stage.
  • Lower TDS rate (2 percent) for technical services: Distinction brought in to reduce ambiguity for IT and technical contract payments.
  • Annual aggregation: Threshold applies on total payments in a year per payee by the deductor.

Example:
If a business pays INR 40000 over a year to a web development consultant, TDS will be deducted at 2 percent for technical services, since the payment exceeds the 30000 limit.

People also ask:
Q: Is GST included in calculation of threshold or TDS amount?
A: TDS must be deducted on the total invoice value, including GST if GST is part of the contract price.


What are the Practical Steps and Compliance Requirements for Section 194J?

How do you deduct and deposit TDS under Section 194J?

If you are a business making payments subject to TDS under Section 194J, follow these steps:

  • Obtain PAN of the payee: Always collect the PAN to avoid higher TDS (20 percent) for non-furnishing.
  • TDS deduction timeline: Deduct TDS at the time of credit or actual payment, whichever is earlier.
  • Deposit TDS: Deposit the deducted TDS to the Government by the 7th of next month.
  • TDS return filing: File TDS returns in Form 26Q on a quarterly basis.
  • TDS certificate: Issue Form 16A (TDS certificate) to the payee within 15 days from TDS return due date.
  • Reporting in books: Show the deducted TDS correctly in your accounting/tax statements.

Best Practices:

  • Use accounting software or the services of a tax consultant for smooth compliance.
  • Leverage online marketplaces to manage multiple payments, as they offer features to track and auto-deduct TDS as per Section 194J requirements.

Pros:

  • Automatic credit of TDS in recipient’s Form 26AS
  • Ensures smooth income reporting for professionals

Cons:

  • Non-compliance leads to penalties and disallowance of expenses
  • Collection of PAN and managing quarterly returns can be tedious for frequent payments

Expert insight:
Many SaaS platforms and marketplaces in India now provide built-in TDS deduction and reconciliation, significantly reducing manual work for businesses.


Who is Exempt or Not Liable to Deduct TDS under Section 194J?

Are there any exceptions to TDS under Section 194J?

Not all payments or payers are required to deduct TDS under this section. The following are exempt:

  • Individuals or HUFs not liable to tax audit:
    If total business turnover in previous year was below the audit threshold (INR 1 crore for business, INR 50 lakh for profession in 2025), then there is no need to deduct TDS.
  • Aggregate payments below threshold:
    If the total professional or technical fees paid to one person during the financial year does not exceed INR 30000, no TDS is applicable.
  • Payments to banks or notified institutions:
    Certain payments, such as fees to banking companies or payment within government, may be specifically exempted by notifications.

People also ask:
Q: Does Section 194J apply to payments for pure reimbursement of expenses?
A: No, if expenses are reimbursed at actuals without any profit element and are substantiated by receipts, TDS is not applicable.


How is Section 194J Different from other TDS Sections like 194C or 194H?

How to differentiate between contracts, commission, and professional service payments?

A frequent confusion arises in distinguishing when to deduct TDS under Section 194J versus other similar sections:

ParameterSection 194JSection 194CSection 194H
Payment TypeProfessional technicalContractsCommission, brokerage
TDS Rate (FY 25)2 percent or 10 percent1 percent 2 percent5 percent
Minimum Limit (per annum)300003000015000
Major ExamplesConsulting, legal, ITWorks contracts, supplyAgent commission

Key tip: When the payment is for intellectual or specified professional effort, it falls under 194J. Ordinary supply or works contract is under 194C. Always clarify nature of service in your agreements.


What are the Penalties and Consequences for Non-Compliance under Section 194J?

What happens if TDS under Section 194J is not deducted or deposited?

Failing to comply with Section 194J provisions can lead to serious consequences:

  • Interest on late deduction/deposit:
    1 percent per month for delay in deduction. 1.5 percent per month for delay in deposit.
  • Disallowance of expense:
    If TDS is not deducted/deposited, 30 percent of the expense is disallowed under Section 40(a)(ia).
  • Penalty and prosecution:
    Fines up to the TDS amount, and prosecution in severe cases.

Best Practice:
Always ensure tracking and timely deposit. Missing TDS returns can also attract penalties of INR 200 per day.

Did you know?
From FY 2025, some online accounting tools send auto-reminders to businesses for TDS compliance under Section 194J, decreasing missed deadlines.


First-Hand Experience: Insights from Indian Businesses and Professionals

What practical challenges do businesses and consultants face with Section 194J?

Over the years, many businesses and professionals have shared common experiences regarding Section 194J:

  • Clarity on service type: Startups often struggle to classify software or digital services between technical and professional.
  • Managing volume: Firms with multiple consultants need robust systems to track payments against threshold limits.
  • Working with international platforms: Sometimes, platforms or companies with global operations get confused regarding residential status and applicability of TDS.

Tips from practitioners:

  • Maintain a regular vendor master with PAN and professional service details.
  • Get clarity in service agreements about the nature of work.
  • Use digital tools and online marketplaces to manage consulting payments, TDS deductions, and documentation centrally.

Expert insight:
Several chartered accountants recommend using online market platforms that compare payroll and compliance solutions side by side, saving hours of monthly effort for Indian SMEs.


Pros and Cons: Section 194J for Payers and Payees

What are the advantages and disadvantages of Section 194J?

Pros:

  • Ensures early and steady revenue collection for Government.
  • Validates tax credit and income reporting for recipients automatically.
  • Simplifies digital and remote working, as TDS is deducted even on platform payments.

Cons:

  • Confusing for new businesses or startups, especially for hybrid services.
  • Additional compliance and paperwork for payers.
  • Delay in TDS credit appears in Form 26AS if TDS is not deposited in time.

Quick Recap: TLDR on Section 194J in 2025

  • Section 194J mandates deduction of TDS on professional, technical, royalty, and non-compete service payments to residents.
  • TDS rates: 10 percent for professional, 2 percent for technical, above annual 30,000 per payee.
  • Applies to all businesses, except small individuals or HUFs not liable to tax audit.
  • Non-compliance can result in penalties, interest, and expense disallowance.
  • Online market platforms offer tools to automate and simplify TDS under Section 194J.

People Also Ask: FAQs for Section 194J

Q1: Can individuals paying fees to professionals be required to deduct TDS under Section 194J?

No, only individuals or HUFs whose turnover exceeds the audit limit in the previous year must deduct TDS under Section 194J. Others are not liable.

Q2: What if the payee does not furnish PAN?

If PAN is not provided, TDS must be deducted at the higher rate of 20 percent.

Q3: Are reimbursements to professionals subject to TDS?

No, if billed separately and supported by documentary evidence.

Q4: Can you get a lower or nil TDS certificate under Section 197?

Yes, payees can apply for a certificate for reduced or nil TDS and provide it to the payer.

Q5: How to check if TDS has been correctly deposited?

Professionals can check their Form 26AS at the TRACES portal for credited TDS.

Q6: Is Section 194J applicable to payments for purchase of software?

If the payment is for customized software development (a service), then yes; if for off-the-shelf software, Section 194J may not apply.


Navigating Section 194J is easier in 2025 with growing digital tools, online marketplaces for consultant services, and expert guidance readily available. For the smoothest tax compliance journey, always seek updated information and consider comparing solutions or consulting specialists before making recurring payments.

Source:

Related Search

Written by Prem Anand, a content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors.

Who is the Author?

Prem Anand is a seasoned content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors. He has a strong command of industry-specific language and compliance regulations. He specializes in writing insightful blog posts, detailed articles, and content that educates and engages the Indian audience.

How is the Content Written?

The content is prepared by thoroughly researching multiple trustworthy sources such as official websites, financial portals, customer reviews, policy documents and IRDAI guidelines. The goal is to bring accurate and reader-friendly insights.

Why Should You Trust This Content?

This content is created to help readers make informed decisions. It aims to simplify complex insurance and finance topics so that you can understand your options clearly and take the right steps with confidence. Every article is written keeping transparency, clarity, and trust in mind.

🏅 This content follows Google's People-First Content Guidelines

Based on Google's Helpful Content System, this article emphasizes user value, transparency, and accuracy. It incorporates principles of E-E-A-T (Experience, Expertise, Authoritativeness, Trustworthiness).

Why Choose Fincover®?

💸
Instant Personal Loan Offers
Pre-approved & 100% online process
🛡️
Wide Insurance Choices
Compare health, life & car plans
📊
Mutual Funds & Investing
Zero commission plans
🏦
Expert Wealth Management
Personalised goal-based planning
Get it on Google Play

Get Started with Fincover®

Download our app and explore loans, insurance, and investments – all in one place.