Tax Deducted at Source (TDS) can sometimes be confusing for business owners, freelancers, and professionals. One of the key sections to understand is Section 194J of the Income Tax Act, which deals with TDS on professional services and technical services.

In this blog, we’ll break down what Section 194J covers, when it applies, the threshold limits, rates, how to comply, and what happens if you don’t. We’ll also show how Finaccle Advisory Private Limited can help you stay compliant with expert services.

What is Section 194J?

Section 194J mandates that certain persons making payments for specific services must deduct tax at source when paying fees for professional services, technical services, royalties, non-compete fees, or directors’ fees (other than salary).

The idea is to ensure that payments for these services don’t bypass tax collection and to increase transparency and compliance. For example, if you hire an accountant, an architect, or get consultancy from a technical services provider, TDS may apply under Section 194J.

Services Covered under Section 194J

Here are the kinds of payments covered under Section 194J:

Professional Services: This includes legal, medical, engineering, architecture, accountancy, interior decoration, advertising, technical consultancy & other professions notified by CBDT.
Technical Services: Managerial, technical, or consultancy services that involve specialized technical knowledge.
Royalty Payments: Use or rights to intellectual property, etc.
Non-Compete Fees: Payments where someone agrees not to carry on certain business or use certain know-how, etc.
Director’s Fees (excluding Salary): If a director is paid fees (sitting fees or commission), that may come under this section.

Who is Required to Deduct TDS under Section 194J?

Not everyone has to deduct TDS under Section 194J. The payer (deductor) must meet certain conditions:

All persons making such payments (companies, firms, trusts, etc.) must deduct TDS.
Individuals or Hindu Undivided Families (HUFs) need not deduct if their turnover / gross receipts are under certain thresholds. However, if the business is undergoing HUF formation or restructuring, it’s important to review tax obligations carefully, as compliance under Section 194J may still apply depending on turnover.
Also, if someone avails professional or technical services for personal use, the obligation may not apply.

Threshold Limit / When Does Section 194J Apply?

One of the frequently asked questions is: When should TDS under 194J be deducted?

For the financial year 2025-26 onwards, the threshold has been increased to ₹50,000 per financial year for each type of payment (professional fees, technical services, royalty, etc.).
Before that, the limit was ₹30,000.

So, if your total payments in a given category (say “professional services”) to a service provider exceed ₹50,000 in a financial year, you must deduct TDS under 194J. If not, then no TDS requirement under that category.

Time of Deduction & Deposit of TDS

TDS under Section 194J must be deducted at the time of credit of payment to the account of the service provider or at the time of actual payment, whichever is earlier.
Once deducted, the deductor must deposit the TDS with the government by the due date. The due date is generally by the 7th of the next month, except for payments in the month of March, which have special deadlines.

Consequences of Non-Compliance

Failing to follow Section 194J rules can lead to:

Interest: For late deduction or late deposit of TDS.
Penalty: Under relevant sections of the Income Tax Act.
Disallowance of Expenses: If TDS is not deducted properly, then deduction of those expenses might be disallowed when computing taxable income.

Example(s)

Let’s go through a couple of practical examples to make this clearer.

Example 1:
ABC Pvt Ltd hires Mr. Raju, a freelance legal consultant, for professional services. In May 2025, ABC pays him ₹40,000. In November 2025, another ₹20,000 for a separate engagement. Total for the year = ₹60,000 for “professional services”. Since the threshold (₹50,000) is crossed, TDS @ 10% must be deducted on payments made from the time of crossing the threshold. The deductor should deduct as soon as payment or credit happens after cumulative payments cross the ₹50,000 limit.

Example 2:
XYZ Ltd takes technical consultancy from an IT firm. The payments total ₹60,000 in a financial year. As technical services are taxed at 2%, TDS @ 2% must be deducted once the payments exceed ₹50,000 for technical services.

How Finaccle Can Help

Understanding all the rules is one thing; implementing them properly is another. That’s where Finaccle’s services can be of great use.

For expert guidance on what exactly qualifies as professional vs technical service, or for helping with your books, check out Accounting Supervision Services by Finaccle.
You can also refer to the Finaccle blog post “TDS on Professional Services, Technical Services under 194J” for more details and official definitions.

By using experts, you reduce the risk of mistakes, penalties, or missed deductions.

Practical Tips for Compliance

Here are actionable tips to ensure you are compliant with Section 194J:

Keep Records: Maintain detailed invoices and records to know which payments fall under “professional services” vs “technical services,” etc.
Track Cumulative Payments: The threshold is per recipient per category per financial year. Even small payments add up. Once the threshold is crossed, you need to deduct TDS.
Verify PAN of Service Provider: If PAN is missing, higher TDS (20%) may apply. Always get PAN.
Deduct TDS in Time: At or before crediting or paying—whichever is earlier.
Deposit TDS & File Returns: Deposit the deducted amount by the prescribed dates; file periodic TDS returns, and issue the certificate (Form 16A, etc.) to the service provider.
Classify Services Correctly: Some services might be ambiguous. It’s important to check CBDT notifications and Finaccle or tax authority guidance to see whether a particular service is professional or technical under the law.

Common Scenarios & FAQs

Here are some common queries:

Do Individuals need to deduct TDS?
Yes, but only if they are liable for tax audit under Section 44AB (i.e., their turnover/gross receipts cross the prescribed limit). Otherwise, they may be exempt.

Is TDS applicable to payments made for personal purposes?
If services are used purely for personal use, then Section 194J may not apply.

What about payments inclusive of GST?
TDS is calculated on the basic value (excluding GST), because GST is a separate tax. The service provider’s invoice will often show GST separately.

What if PAN is not provided?
Higher TDS rate (often 20%) will apply. Also, credit may not reflect properly until corrected.