Section 194J TDS for FY 2025-26: ₹50,000 Threshold, 2% and 10% Rates

What Is Section 194J?

Section 194J of the Income-tax Act, 1961 requires certain payers to deduct tax at source (TDS) on specified payments to residents. Common examples include professional fees, technical service fees, royalty, non-compete fees and certain payments to directors.

For FY 2025-26, it applies to eligible credits or payments made from 1 April 2025 to 31 March 2026. The Finance Act, 2025 increased the general threshold for specified payment categories from ₹30,000 to ₹50,000, effective 1 April 2025.

TDS is generally deducted at the earlier of credit to the payee’s account or payment. It is a tax credit for the recipient, not a tax on the payer’s expense.

Section 194J Rates and Thresholds

The applicable rate depends on the nature of the payment. The threshold is generally tested against the relevant payments to the payee during the financial year.

These are general domestic rates. A valid lower or nil deduction certificate, failure to provide PAN and other provisions may affect the deduction. Check the rules that apply to the particular payment and payee.

If the applicable ₹50,000 threshold is exceeded, TDS generally applies to the entire relevant amount, not only the portion above ₹50,000. For example, if professional fees paid to a resident consultant total ₹62,000 for the year, the payer generally deducts 10% on ₹62,000, not just on ₹12,000.

What Counts as Professional or Technical Services?

Professional services include services in fields such as law, medicine, engineering, architecture, accountancy, technical consultancy, interior decoration and advertising. Other professions notified for this purpose are also covered.

Fees for technical services broadly cover managerial, technical or consultancy services as defined under the Act. The label on an invoice or contract does not settle the classification. For instance, calling a payment “consultancy” does not by itself establish whether it is professional or technical service income.

The distinction matters because the general rates differ:

• Professional services generally attract TDS at 10%.
• Technical services other than professional services generally attract TDS at 2%.
• Certain payments to a director, other than salary, generally attract TDS at 10% without the general ₹50,000 threshold.

If the payment is salary, the employer should examine Section 192. If it is for contract work or commission, Sections 194C or 194H may be relevant. Classify the payment by its actual nature and the terms of the arrangement.

Who Must Deduct TDS?

Section 194J generally applies to a person responsible for paying a covered amount to a resident. Companies, firms, LLPs and other business entities may have to deduct TDS when the payment and threshold conditions are met.

An individual or Hindu Undivided Family (HUF) generally has to deduct under Section 194J if their business or professional turnover exceeded the applicable tax-audit limit under Section 44AB in the immediately preceding financial year. The applicable limits depend on the type of activity and other conditions. A limited exception applies to professional fees paid exclusively for the individual’s personal purposes or those of a HUF member.

Section 194M may also be relevant to an individual or HUF who is not required to deduct under Sections 194C, 194H or 194J. It can apply to specified payments to resident contractors, commission or brokerage recipients, or professionals when aggregate payments exceed ₹50 lakh in the financial year. Its conditions and rate differ, so do not assume that non-applicability of Section 194J ends the TDS review.

Section 194J generally concerns payments to residents. For a non-resident recipient, the payer should examine Section 195 and any applicable treaty requirements instead of automatically using the domestic Section 194J rate.

When and on What Amount Is TDS Deducted?

Deduct TDS at the earlier of:

• Credit of the amount to the payee’s account; or
• Actual payment by cash, cheque, transfer or another mode.

A credit to a suspense account or another account in the payer’s books can also be treated as credit to the payee. Do not wait until money is transferred if the amount has already been credited in the accounts.

Where GST on services is separately shown in the agreement or invoice, CBDT guidance generally excludes that separately identified GST component from the amount on which TDS is calculated. Do not automatically exclude other reimbursements or charges; review the contract, supporting records and applicable guidance.

Example: Professional Fees

A company pays a resident professional ₹40,000 in one month and another ₹22,000 later in FY 2025-26. The total is ₹62,000, which exceeds the ₹50,000 threshold. TDS generally applies at 10% to the total relevant professional fees, subject to the facts and any valid certificate.

Example: Technical Service Fees

A business pays a resident technical service provider ₹80,000 for covered services. If no exception or lower-deduction certificate applies, TDS at 2% would be ₹1,600.

Checks Before Deducting

Before deciding whether Section 194J applies, check:

• Payment category: Is it for professional services, technical services, royalty, non-compete fees or a director payment?
• Recipient’s residential status: Section 194J generally covers resident recipients. Non-resident payments need a separate review.
• Threshold: Track the relevant payment category and the amount paid or credited to each payee during the financial year.
• Payer status: Determine whether an individual or HUF is covered by the turnover and tax-audit requirements.
• Certificate: A valid certificate under Section 197 may authorise lower or nil deduction. Use it only within its validity and scope.
• PAN: If the payee does not provide a valid PAN, the higher rate under Section 206AA may apply.
• Personal-purpose exception: An individual or HUF may have a limited exception for professional fees paid exclusively for personal purposes.
• Other TDS provisions: Salary, contract payments, commission, non-resident payments and some individual/HUF payments may fall under other provisions.

Forms 15G and 15H are not a general exemption from TDS under Section 194J. Do not use them in place of a Section 197 certificate where one is required.

How to Deposit and Report Section 194J TDS

For FY 2025-26, a non-government deductor generally deposits monthly TDS by the 7th of the following month. TDS deducted in March is generally due by 30 April. Government deductors may have different payment arrangements and should follow the applicable government accounting rules.

The deductor generally reports TDS on resident non-salary payments in quarterly Form 26Q. The usual due dates are:

The payer should also issue Form 16A, the TDS certificate for non-salary payments, within the prescribed time after filing the relevant quarterly statement. Compare the certificate with Form 26AS and the filed statement. For payer-side filing support, see TaxClear’s TDS and TCS filing service.

These forms and dates relate to the Income-tax Act, 1961 framework for FY 2025-26. Payments and credits from 1 April 2026 fall under the Income-tax Act, 2025 and its forms and procedures. Check the current requirements rather than reusing old form or section numbers.

What the Recipient Should Check

The recipient should check that the payer has used the correct PAN and reported the TDS accurately. The credit may appear in Form 26AS and the recipient’s tax information. If it is missing or incorrect, contact the payer and request a correction to the TDS statement.

TDS is not the recipient’s final tax liability and does not automatically classify the income as professional income. The recipient should report the income under the appropriate head based on the facts and claim eligible TDS credit in the ITR.

A recipient with business or professional income may need an ITR form that reports that income. The correct form depends on the person’s income sources and eligibility—not only on the section under which the payer deducted TDS. TaxClear’s online ITR filing guide for AY 2026-27 explains the return-filing process.

Records to Maintain

Payers should retain:

• Contracts, engagement letters and invoices;
• The payee’s PAN and residential-status details;
• Documents supporting the payment classification and rate;
• Payee-wise TDS calculations;
• Payment and credit dates, including suspense-account entries;
• Challan records and Form 26Q acknowledgements;
• Form 16A certificates; and
• Any valid Section 197 certificate.

Recipients should keep invoices, bank records, TDS certificates and tax-credit information. These records help identify mismatches and support the income and credit reported in the return.

Interest, Fees and Penalties for Non-Compliance

Late or incorrect TDS compliance can result in interest, fees or penalties, depending on the default. Interest may apply for failure to deduct or for delay in depositing tax after deduction. A late TDS statement may attract a fee under Section 234E, and a penalty may apply for specified failures or incorrect information.

The consequences depend on the facts, the length of the delay, corrections made and any applicable statutory relief. If a mismatch or omission is found, reconcile the books, challans, Form 26Q and tax-credit records, then file the appropriate correction statement.

Common Mistakes to Avoid

• Using the old ₹30,000 threshold for payments made in FY 2025-26;
• Applying 10% to every technical-service payment without checking whether the 2% rate applies;
• Deducting only on the amount above ₹50,000 after the threshold is exceeded;
• Failing to check whether another TDS provision is more appropriate;
• Deducting only when cash is paid, despite an earlier credit in the books;
• Treating TDS as the recipient’s final tax or as proof that income is professional income; and
• Using Form 26Q or Form 16A for payments governed by the new law from 1 April 2026.

Frequently Asked Questions

Is the Section 194J threshold ₹50,000 for FY 2025-26?

Yes. The threshold for specified payment categories increased to ₹50,000 from 1 April 2025. Certain director payments do not have the general threshold.

Is TDS deducted at 2% or 10%?

It depends on the payment. Professional services generally attract 10%, while technical services other than professional services generally attract 2%. Royalty and director payments must also be classified under the applicable provisions.

Is TDS deducted only on the amount above ₹50,000?

Generally, no. Once the applicable annual threshold is exceeded, TDS generally applies to the entire relevant amount, not just the excess.

Is a non-resident covered by Section 194J?

Section 194J generally applies to payments to residents. For non-resident payments, consider Section 195 and any applicable treaty.

Does TDS under Section 194J settle the recipient’s tax?

No. It is a credit against the recipient’s tax liability. The recipient must still report the income correctly and claim eligible TDS credit in the ITR.