TDS (Tax Deducted at Source) is a tax system where the payer deducts a part of the payment as tax and deposits it with the Government, so tax is collected at the time income is earned, not just at year-end.
Now, let’s decode Section 194J of Income Tax Act in a simple, real-life way: whenever a business (or specified payer) pays a resident for professional services, technical services, royalty, or certain director payments, they may have to deduct TDS before paying you. This rule is commonly referred to as the provision for service-related payments.
What payments are covered under Section 194J?
Under the 194J section, TDS applies broadly to payments like:
- Fees for professional services (e.g., CA, lawyer, doctor, architect, consultant)
- Fees for technical services (e.g., IT support, software/tech services—depending on contract nature)
- Royalty (specific royalty cases like film distribution/exhibition)
- Payments to directors like remuneration/fees/commission (other than salary covered under Section 192)
- Non-compete fees / certain business-related sums (linked to Section 28 references in the law)
TDS rates (quick, practical view)
As per the law text and common compliance guides:
- 2% in case of fees for technical services (in many cases)
- 10% in other cases covered here (professional fees, most royalties, director fees, etc.)
Exact applicability can depend on the nature of the service and contract wording—so invoices + agreement description matter.
Who is required to deduct TDS under section 194J?
In simple words: If you are making payments under this section and you are not an ‘individual/HUF’ in most cases, you are generally liable to deduct TDS. Individuals/HUF may be liable to deduct TDS in certain cases depending on tax audit/business conditions—your CA will be able to guide you on this.
This is why section 194J of the income tax act is so important for startups, SMEs, agencies and finance teams since service payments are ubiquitous.
Latest Update (Budget 2026 Update)
Budget 2026 brought attention to rule-based automation for lower or nil TDS certificates, which is intended to minimise the requirement to ‘chase approvals’ and make cash flow easier for small taxpayers. This is a general improvement to TDS compliance (not a rate/threshold update for section 194J), but it may assist eligible taxpayers in reducing over-deductions of TDS throughout the year.
Let’s understand the deductions with a couple of examples,
Example 1: Marketing consultant payment
A company pays a consultant ₹80,000 for a campaign strategy in the FY 2025-26. As it is a professional service, the company checks the threshold and then deducts TDS (usually 10%) before making the payment. This is how the 194J Income Tax Act section works.
Example 2: Technical service agreement
A company pays ₹60,000 for technical support services. If it is a “technical service,” TDS is to be deducted at 2%. Again, it is the of the income tax act that comes into play before making the payment.
Common Things People Miss
- The threshold is annual: it’s about the total amount paid/credited in the financial year to that payee, not just for one transaction. It’s about timing: the deduction is to be made at the time of credit or payment whichever is earlier.
- Getting it wrong affects rates: if you label it ‘technical’ vs ‘professional’, it might affect the rates. Therefore, keep your contracts and invoices simple.
The Bottom Line
If you are earning through consulting, freelancing, agency, professional, tech services, royalty, or director fees, Section 194J of Income Tax Act is one of the most common TDS sections you will encounter. And if you are the one making the payment, the 194J Income Tax Act compliance is pretty much: determine the type of payment, see the threshold, deduct at the correct rate and pay/deposit correctly to avoid any unpleasantness down the line.
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FAQs on Section 194J of Income Tax
What is the present TDS limit under section 194J?
For FY 2025-26, most sources and TDS rate tables indicate a threshold of ₹50,000 annually, for each payee, under the categories covered by the section that is, if the aggregate payments made during the year do not exceed ₹50,000, TDS may not be due.
What is the TDS 194J limit for FY 2025 26?
The limit for FY 2025-26 is indicated as ₹50,000 in the latest TDS provisions for Section 194J. Therefore, yes—the TDS 194J limit for FY 2025 26 is considered to be ₹50,000 in general.
Is TDS applicable on director sitting fees?
Yes. Director fees including sitting fees are specifically included: payments such as ‘remuneration or fees or commission… to a director of a company’ (except under Section 192 for salary) are liable under Section 194J and therefore TDS is normally applicable if the threshold is exceeded.