Section 194J of Income Tax Act: TDS Rates & Threshold Limits

Introduction

The section 194J of Income Tax Act governs the deduction of tax at source (TDS) on specified payments made to resident professionals and service providers.

Businesses frequently make payments for legal services, consultancy, technical support, royalty, director remuneration, and non-compete agreements. To ensure timely tax collection, the Income Tax Department requires deductors to withhold tax before making such payments.

Understanding the section 194J of Income Tax Act is essential for businesses, LLPs, companies, and professionals to avoid interest, penalties, and dis-allowance of expenses.

From 1 April 2026, the provisions of section 194J of Income Tax Act have been consolidated under Section 393(1) of the Income Tax Act, 2025.

What is Section 194J of Income Tax Act?

The section 194J of Income Tax Act mandates the deduction of TDS on specified payments made to resident persons for:

• Fees for professional services
• Fees for technical services
• Royalty
• Director remuneration or sitting fees
• Non-compete fees under Section 28(va)

[Corresponding provision: Section 393(1), Table Sl. No. 6(iii) of the Income Tax Act, 2025]

Tax must be deducted at the time of credit of the amount to the payee’s account or at the time of payment, whichever is earlier.

Who is Required to Deduct TDS Under Section 194J of Income Tax Act?

The following persons are required to deduct TDS under section 194J of Income Tax Act:

• Companies
• Partnership firms
• Limited Liability Partnerships (LLPs)
• Trusts
• Association of Persons (AOPs)
• Body of Individuals (BOIs)
• Co-operative societies
• Government entities

Individuals and Hindu Undivided Families (HUFs) are also required to deduct TDS if their turnover or gross receipts exceed the prescribed limits in the immediately preceding financial year.

[Corresponding provision: Section 393(1) of the Income Tax Act, 2025]

Turnover Limits for Individuals and HUFs

Note: No change has been made under the Income Tax Act, 2025 as on the effective date.

Payments Covered Under Section 194J of Income Tax Act

1. Fees for Professional Services

Professional services include services rendered by:

• Legal professionals
• Medical practitioners
• Engineers
• Architects
• Chartered Accountants
• Company Secretaries
• Interior decorators
• Film artists
• Information technology professionals
• Authorised representatives

[Corresponding provision: Section 393(1), Table Sl. No. 6(iii)D(a) of the Income Tax Act, 2025]

2. Fees for Technical Services

Technical services generally include managerial, technical, or consultancy services.

[Corresponding provision: Section 393(1), Table Sl. No. 6(iii)D(b) of the Income Tax Act, 2025]

3. Royalty

Royalty includes payments for:

• Use of patents
• Use of trademarks
• Copyrights
• Designs and models
• Know-how
• Industrial, commercial, or scientific equipment

[Corresponding provision: Relevant entries under Section 393(1), Table Sl. No. 6(iii) of the Income Tax Act, 2025]

4. Director’s Remuneration or Sitting Fees

Director remuneration, commission, or sitting fees paid by a company, other than salary covered under Section 192, are subject to TDS.

[Corresponding provision: Separate entry under Section 393(1), Table Sl. No. 6(iii) of the Income Tax Act, 2025]

5. Non-Compete Fees

Payments made under agreements restricting business or professional activities, as referred to under Section 28(va), are covered under this section.

[Corresponding provision: Relevant entry under Section 393(1), Table Sl. No. 6(iii) of the Income Tax Act, 2025]

Threshold Limit Under Section 194J of Income Tax Act

TDS under section 194J of Income Tax Act is required only when the aggregate amount paid or credited during a financial year exceeds the prescribed threshold. With effect from 1 April 2025, the threshold limit has been increased from ₹30,000 to ₹50,000.

Note: The threshold limits remain substantially unchanged under Section 393(1) of the Income Tax Act, 2025. The threshold applies separately to each category of payment.

TDS Rates Under Section 194J of Income Tax Act

The TDS rates vary depending on the nature of payment.

Note: No significant changes have been introduced under Section 393(1) of the Income Tax Act, 2025.

When Should TDS Be Deducted Under Section 194J?

Under section 194J of Income Tax Act, TDS must be deducted at the earlier of the following events:

• At the time of credit to the payee’s account; or
• At the time of actual payment.

[Corresponding provision: Section 393(1)(c) of the Income Tax Act, 2025]

TDS Return Filing Requirements Under Section 194J of Income Tax Act

Applicable Form

TDS deducted under this section must be reported in Form 140 (earlier Form 26Q).

[Similar reporting requirements are expected to continue under Section 393(1) of the Income Tax Act, 2025.]

Quarterly Due Dates

The deductor must also issue Form 131 (earlier Form 16A) to the deductee within the prescribed timelines.

Consequences of Non-Compliance Under Section 194J of Income Tax Act

Failure to comply with the provisions may result in:

Interest Under Section 201(1A)

• 1% per month or part thereof for failure to deduct TDS.
• 1.5% per month or part thereof for failure to deposit TDS after deduction.

Late Filing Fee Under Section 234E

A late filing fee of ₹200 per day is payable until the default continues, subject to the amount of TDS.

Penalty Under Section 271H

A penalty ranging from ₹10,000 to ₹1 lakh may be levied for non-filing or incorrect filing of TDS returns.

Dis-allowance of Expenses Under Section 40(a)(ia)

Thirty per cent of the expenditure may be disallowed if TDS is not deducted or deposited within the prescribed time. Similar consequences continue under the corresponding provisions of the Income Tax Act, 2025.

Section 194J of Income Tax Act vs Section 393(1) of the Income Tax Act, 2025

Mapping of Section 194J to Section 393(1)

Key Changes Introduced Under the Income Tax Act, 2025

• Section 194J has been consolidated under Section 393(1).
• TDS provisions have been reorganized into a simplified table-based structure.
• Threshold limits and TDS rates remain substantially unchanged.
• Taxpayers should update their ERP systems, accounting software, and compliance documentation to reflect the new section references.

Simplify Section 194J TDS Compliance with EbizFiling

Determining whether a payment qualifies as professional services, technical services, royalty, or director remuneration under Section 194J can be complex. Incorrect TDS deduction may lead to interest, penalties, and compliance notices.

EbizFiling assists businesses with accurate TDS applicability checks, correct rate determination, timely TDS payments, Form 140 filing, Form 131 issuance, and resolution of TDS notices.

We also help businesses align their compliance processes with the transition from Section 194J of the Income Tax Act, 1961 to Section 393(1) of the Income Tax Act, 2025.

Connect with EbizFiling for end-to-end TDS compliance support and stress-free return filing.

Conclusion

The section 194J of Income Tax Act plays an important role in ensuring TDS compliance on payments made for professional services, technical services, royalty, director remuneration, and non-compete fees.

Although section 194J of Income Tax Act has been consolidated under Section 393(1) of the Income Tax Act, 2025, the underlying compliance requirements remain largely unchanged.

Businesses should regularly review TDS applicability, threshold limits, deduction rates, and return filing obligations to avoid interest, penalties, and dis-allowance of expenses.

Frequently Asked Questions