TDS under section 194J needs to be deducted on payments for professional fee, technical fee, royalty, non compete fee and director's remuneration. No TDS needs to be deducted of the payment during the financial year is within Rs. 50,000.
Key Highlights
- Section 194J deals with royalty, non-compete fees, professional and technical services.
- No TDS needs to be deducted up to a limit of Rs. 50,000 during the financial year.
- 2% TDS is deducted for technical fees. For other transactions, 10% TDS is deducted.
Section 194J covers payment for professional, technical fees, royalty and non compete fees, including directors remuneration. TDS is deducted at 10% for professional services, royalty and directors remuneration, 2% for technical services. Where PAN is not provided by the recipient, 20% TDS is deducted. Payments of personal nature are not subject to TDS deduction under section 194J.
No TDS needs to be deducted of the payment throughout the financial year is within Rs. 50,000. This threshold limit was Rs. 30,000 until the preceding financial year.
The types of payments to residents covered under this section are as follows:
Notified Professions by CBDT
CBDT has notified the profession of:
CBDT has further notified sportspersons, commentators, event managers, anchors, umpires and referees, physiotherapists, coaches and trainers, team physicians, and sports columnists under Section 194J.
As per income tax rules, ‘fees for technical services’ means managerial, technical, and consultancy services. It does not include payments considered as Salary by the recipient of such income.
As per the Supreme Court’s judgment, technical service includes services provided by humans. It does not include services provided by machines or robots.
Royalty means the payment made for:
Non-compete fees imply the payment made in cash or kind in return for an agreement that restricts them from sharing any license, patent, trademark, franchise, know-how, commercial or business rights, or information likely to be utilized elsewhere for processing, manufacture, or any other provisional service.
Every person making a payment in the nature of fees for professional or technical services is liable to deduct tax at source. However, the below persons are not liable to deduct TDS under this section on such payments:
To put it simply, all entities (other than individuals/HUF who are not required to do a tax audit in the preceding year) need to deduct tax (TDS) while paying fees for professional or technical services. In cases where 194J is not applicable, section 194M might be applicable.
Note: The limit was Rs. 30,000 up to FY 2024-25.
Nature of payments | Rate of tax deduction | Threshold Limit |
Any payment of fees for technical service | 2% | Rs. 50,000 |
Payments made to operators of call centers | 2% | Rs. 50,000 |
Payment of royalty for sale, distribution or exhibition of cinematographic films. | 2% | Rs. 50,000 |
Other Royalty | 10% | Rs. 50,000 |
All other payments covered under this section (Like Professional Services) | 10% | Rs. 50,000 |
Payee does not furnish his/her PAN | 20% | Rs. 50,000 |
Payments made by the company to directors by way of fees, commissions or remuneration | 10% | Nil |
The tax should be deducted at the time of-
Time of Payment | Non – Government Deductors | Deductors from the Office of Government |
Payment made before 1st March | 7th day from the end of the month |
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Payment made in the month of March | April 30th |
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Not deducting the tax or late deduction of the tax has a two-fold consequence:
Example 1: Mr Jay has availed professional service from Mr Veer in F.Y. 2025-26. The first payment was in April month of Rs 55,000, and the second payment was in December month of Rs 22,000. Let us check the TDS liability for both the payments for the F.Y. 2025-26 in three scenarios:
Analysis Of Situation 1
Since Mr Jay is not liable for Tax Audit u/s 44AB, he is not liable to deduct tax under this section while making payment to Mr Veer.
Analysis Of Situation 2
Although Mr Jay has taken professional services, that was for personal purposes. Hence, no TDS is required to be deducted while making payments for such services.
Analysis Of Situation 3
If a Tax Audit applies to Mr Jay and he avails professional services for business purposes, then TDS @ 10% must be deducted at Rs. 55,000 while making payment or crediting the accounts, whichever is earlier. This is because the transaction has exceeded the threshold limit of Rs. 50,000.
Similarly, since the transaction amount exceeded the threshold limit in the financial year, TDS should be deducted for all the payments made to Mr Veer. Hence, tax shall also be deducted at source on the second payment of Rs. 22,000.
Example 2: A Badminton Club has engaged Mr Pravin, a resident of India, as its coach at a remuneration of Rs 10 lakh per annum. Whether the club liable to deduct TDS from such payment?
Services provided by coaches for sports activities are notified as professional services under section 194J. The remuneration is more than Rs 50,000 per annum. Therefore, the Badminton Club is liable to deduct TDS under section 194J from the remuneration payable to the Coach, Mr Pravin.