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In summary
Section 194J of the Income-tax Act, 1961 governed Tax Deducted at Source, or TDS, on professional fees, technical-service fees, royalty, non-compete payments, and certain director payments. From 1 April 2026, the corresponding rules are contained in Section 393 of the Income-tax Act, 2025. Key points include:
- Current threshold is Rs. 50,000.
- Technical services generally attract 2% TDS.
- Professional services generally attract 10% TDS.
- Certain film royalties attract 2% TDS.
- Director payments have no monetary threshold.
- TDS applies on payment or credit.
- Section 393 applies from April 2026.
The payment type must be identified correctly because the rate and threshold can differ. The Rs. 50,000 threshold does not apply to non-salary payments made to company directors.
What was Section 194J?
Section 194J required specified payers to deduct TDS on certain payments made to residents.
Under the Income-tax Act, 1961, the provision covered:
- Fees for professional services
- Fees for technical services
- Director remuneration, fees, or commission other than salary
- Royalty
- Non-compete fees covered by the relevant provision
The Finance Act, 2025 increased the threshold for professional services, technical services, royalty, and non-compete payments from Rs. 30,000 to Rs. 50,000, effective from 1 April 2025.
The Income Tax Department confirmed this Rs. 50,000 threshold in its Finance Act, 2025 highlights.
For payments arising from 1 April 2026, the corresponding rules now sit in Section 393 of the Income-tax Act, 2025.
What changed from 1 April 2026?
Section 393 replaced the operative Section 194J framework for payments arising from 1 April 2026 onwards.
The Income-tax Act, 2025 came into force on 1 April 2026. The Income Tax Department's 2026 transition guidance states that income earned up to 31 March 2026 remains governed by the 1961 Act, while the new Act applies from 1 April 2026.
Under Section 393(1), Table serial number 6(iii), the current provision covers fees for professional services, technical services, director payments other than salary, royalty, and specified non-compete payments.
The underlying 2% and 10% rate structure has broadly continued.
Which payments attract TDS?
The applicable TDS rate depends on the nature of the payment.
The current Section 393 framework provides the following rates:
| Nature of payment | TDS rate | Threshold (Rs.) |
| Technical services, not professional services | 2% | 50,000 |
| Cinematographic film royalty specified by law | 2% | 50,000 |
| Payee operating only a call centre | 2% | 50,000 where applicable |
| Professional services | 10% | 50,000 |
| Other royalty | 10% | 50,000 |
| Specified non-compete payment | 10% | 50,000 |
| Director fees, commission, or remuneration other than salary | 10% | No threshold |
The Income Tax Department's April 2026 Section 393 reference confirms the 2% rate for specified technical services, specified cinematographic-film royalty, and eligible call-centre payments. Other payments covered by this entry attract 10% TDS.
A payment should therefore be classified before applying the TDS rate.
Who has to deduct TDS?
Specified persons making covered payments to residents must deduct TDS under the current rules.
Under the Income-tax Act, 2025, a specified person broadly includes:
- A person other than an individual or Hindu Undivided Family
- An individual or HUF whose preceding tax-year business turnover exceeded Rs. 1 crore
- An individual or HUF whose preceding tax-year professional receipts exceeded Rs. 50 lakh
The Rs. 1 crore and Rs. 50 lakh tests are used to determine whether an individual or HUF falls within the specified-person definition for these provisions.
Read more: Section 44AB of the Income Tax Act.
When does the Rs. 50,000 limit apply?
The Rs. 50,000 threshold applies to the aggregate covered amount paid or credited to the resident during the relevant tax year for the specified category.
The current threshold applies to professional fees, technical-service fees, royalty, and specified non-compete payments.
If the applicable amount exceeds Rs. 50,000, TDS applies to the entire covered amount, not merely the portion above Rs. 50,000.
For example, suppose a firm pays a resident consultant professional fees totalling Rs. 51,000 during the year. Once the applicable threshold is crossed, TDS is calculated on Rs. 51,000.
Director remuneration, fees, or commission covered by this TDS provision has no monetary threshold.
When must TDS be deducted?
TDS must be deducted at the time of credit or payment, whichever occurs earlier.
Section 393 of the Income-tax Act, 2025 states that deduction takes place when the sum is credited to the payee's account or paid through cash, cheque, draft, or another mode, whichever event happens first.
For example, if a professional fee is credited in October but actually paid in November, the TDS obligation arises at the October credit stage.
This rule prevents the deduction from being postponed merely because payment is made later.
What happens if TDS is missed?
Failure to deduct or deposit TDS can result in interest, disallowance of expenditure, and other statutory consequences.
Under Section 398 of the Income-tax Act, 2025, failure to deduct TDS attracts simple interest at 1% per month or part of a month from the date tax should have been deducted until actual deduction.
If TDS is deducted but not deposited, interest applies at 1.5% per month or part of a month until payment.
Section 35 of the Income-tax Act, 2025 also provides for 30% disallowance of specified resident payments where applicable TDS has not been deducted or deposited within the prescribed conditions.
These consequences make correct classification and timely compliance important.
Which related tax provisions matter?
Section 194J should be read alongside related TDS and income-tax provisions when the nature of a payment is unclear.
One important comparison is Section 194C, which historically covered payments to contractors.
From 1 October 2024, the definition of “work” under Section 194C was specifically amended so that a sum covered under Section 194J was excluded from that definition. Under the current Act, contractor
payments and professional or technical-service payments are separately identified within Section 393.
How do the 2% and 10% rates work?
The 2% rate applies to specified technical-service and related payments, while the 10% rate applies to professional services and most other covered payments.
Consider two illustrations.
A company pays a resident chartered accountant Rs. 1,00,000 for professional consultancy. At a 10% rate:
TDS = Rs. 1,00,000 × 10% = Rs. 10,000
The amount before considering any other adjustment would therefore be Rs. 90,000 after TDS.
Now suppose a qualifying technical-service payment of Rs. 1,00,000 attracts 2% TDS:
TDS = Rs. 1,00,000 × 2% = Rs. 2,000
Correct classification therefore directly affects the amount deducted.
Conclusion
Section 194J historically governed TDS on professional services, technical services, royalty, non-compete fees, and specified director payments. The threshold increased to Rs. 50,000 from 1 April 2025, while the main rates remained 2% and 10% depending on payment type.
From 1 April 2026, the Income-tax Act, 2025 governs current transactions, with the corresponding provisions contained in Section 393. Businesses and other deductors should therefore check the current section, payment classification, threshold, and rate before deducting TDS.
Last reviewed: October 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
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Frequently Asked Questions
Thresholds and TDS codes
Comparing related TDS provisions
What is Section 194J TDS limit?
The Section 194J threshold was increased from Rs. 30,000 to Rs. 50,000 from 1 April 2025 for professional fees, technical-service fees, royalty, and specified non-compete payments. From 1 April 2026, the corresponding Rs. 50,000 threshold appears under Section 393 of the Income-tax Act, 2025. Director fees, commission, or remuneration other than salary continue to have no monetary threshold under the corresponding provision.
What is the difference between 194J A and 194J B?
194J(a) and 194J(b) are TDS reporting classifications used to distinguish the two rate groups rather than separate substantive sections of the Act. Official TDS coding identifies 194J(a) with the 2% category, including qualifying technical services, specified film royalty, and call-centre payments, while 194J(b) covers professional services, other royalty, and related payments generally subject to 10% TDS.
What is the difference between 194C and 194J?
Section 194C historically applied to contractor payments for specified work, while Section 194J covered professional services, technical services, royalty, and related payments. From 1 October 2024, sums covered by Section 194J were expressly excluded from the Section 194C definition of work, helping distinguish the two provisions. From April 2026, both types of payments are organised within Section 393 of the Income-tax Act, 2025.
What are the benefits of 194J?
Section 194J created a mechanism for collecting part of the recipient's income tax when specified professional, technical, royalty, or related payments were made. The amount deducted is deposited with the government and can form part of the recipient's TDS credit, subject to the applicable tax records and return. The provision supports tax collection at the payment stage rather than creating an additional tax over and above the recipient's final tax liability.
What is the difference between 194J and 194M?
Section 194J primarily applied to specified businesses and other covered payers making professional or technical payments to residents. Section 194M applied to individuals and HUFs not otherwise required to deduct under provisions such as Sections 194C or 194J when covered payments exceeded Rs. 50 lakh in a financial year. The corresponding current rule appears in Section 393 and carries a 2% TDS rate.
How does the TDS rate differ for professional fees and technical services?
Professional-service payments covered by the relevant provision generally attract 10% TDS, while qualifying fees for technical services that are not professional services attract 2% TDS. The current Section 393 framework also uses 2% for specified cinematographic-film royalty and qualifying call-centre payments. Correctly identifying the nature of the service is therefore necessary before selecting the applicable TDS rate.
When does the threshold apply during the year?
The Rs. 50,000 limit is tested against the relevant amount or aggregate amount paid or credited to the resident during the tax year for the covered category. Once the applicable threshold is exceeded, TDS is deducted on the entire covered amount rather than only on the amount above Rs. 50,000. Director payments covered by the provision are different because the current rule specifies a nil threshold.
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