Last updated on: July 29, 2025
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.
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.
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.
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.
Section 194J covers a wide range of services beyond just consultancy. The main categories include:
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.
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.
For the financial year 2025, the following TDS rates and thresholds are applicable:
Category of Payment | TDS Rate (as of 2025) | Minimum Threshold per annum (INR) |
---|---|---|
Professional services | 10 percent | 30000 |
Technical services | 2 percent | 30000 |
Royalty and non-compete fees | 10 percent | 30000 |
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.
If you are a business making payments subject to TDS under Section 194J, follow these steps:
Expert insight:
Many SaaS platforms and marketplaces in India now provide built-in TDS deduction and reconciliation, significantly reducing manual work for businesses.
Not all payments or payers are required to deduct TDS under this section. The following are exempt:
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.
A frequent confusion arises in distinguishing when to deduct TDS under Section 194J versus other similar sections:
Parameter | Section 194J | Section 194C | Section 194H |
---|---|---|---|
Payment Type | Professional technical | Contracts | Commission, brokerage |
TDS Rate (FY 25) | 2 percent or 10 percent | 1 percent 2 percent | 5 percent |
Minimum Limit (per annum) | 30000 | 30000 | 15000 |
Major Examples | Consulting, legal, IT | Works contracts, supply | Agent 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.
Failing to comply with Section 194J provisions can lead to serious consequences:
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.
Over the years, many businesses and professionals have shared common experiences regarding Section 194J:
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:
Cons:
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.
If PAN is not provided, TDS must be deducted at the higher rate of 20 percent.
No, if billed separately and supported by documentary evidence.
Yes, payees can apply for a certificate for reduced or nil TDS and provide it to the payer.
Professionals can check their Form 26AS at the TRACES portal for credited TDS.
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.
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Written by Prem Anand, a content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors.
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.
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.
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