If you pay a chartered accountant, lawyer, consultant, designer or IT contractor, section 194J of the Income Tax Act 1961 may require you to deduct tax at source before you release the payment. This guide explains who must deduct, the 10 percent and 2 percent rates, the new Rs 50,000 threshold for FY 2025-26 (AY 2026-27), and how a freelancer claims that money back.
| Question | Answer |
|---|---|
| Who must deduct? | Any business or person paying professional or technical fees, except individuals and HUFs who are not under section 44AB tax audit |
| Deduct on what? | Fees for professional services, technical services, royalty, non-compete fees and director remuneration |
| Standard rate | 10 percent of the payment |
| Reduced rate | 2 percent for fees for technical services and for call-centre operators |
| Threshold (FY 2025-26) | TDS applies once total payment in the year crosses Rs 50,000 per category |
| No PAN | 20 percent under section 206AA |
| When does the payee get it back? | Claimed as TDS credit in the income tax return; refundable if excess |
The single biggest mistake businesses make is applying 10 percent to everything. The Act splits the rate by the nature of the service.
| Nature of payment | TDS rate | Threshold (per year, per category) |
|---|---|---|
| Professional services (CA, lawyer, doctor, architect, engineer) | 10% | Rs 50,000 |
| Royalty and non-compete fees | 10% | Rs 50,000 |
| Fees for technical services (FTS) | 2% | Rs 50,000 |
| Call-centre operators | 2% | Rs 50,000 |
| Director remuneration (sitting fees, commission) | 10% | Nil (deduct from rupee one) |
| Payee has not furnished PAN | 20% | Threshold ignored |
📌 The 2 percent rate for FTS was reduced from 10 percent with effect from FY 2020-21. In TDS returns these appear as code 194JA (the 2 percent payments) and 194JB (the 10 percent payments). These are reporting labels, not separate sections of the Act; the rate split itself sits inside section 194J.
Section 194J of the Income Tax Act 1961 governs tax deducted at source on fees for professional or technical services, royalty, non-compete fees, and director remuneration other than salary.
If you are a freelancer, also read how presumptive taxation works at Presumptive Taxation under 44AD and 44ADA, because the income on which 194J was deducted is the same income you declare there.
Once liable, you must deduct at the earlier of credit in your books or actual payment, deposit it by the due date, file the quarterly TDS return, and issue Form 16A to the payee.
Priya runs a small design studio registered as an LLP. In FY 2025-26 she pays:
The consultant later finds the Rs 12,000 was more than her actual tax. She files her return, claims the full Rs 12,000 as credit, and gets the excess refunded.
TDS is not a final tax. It is an advance toward the payee's yearly liability.
Always reconcile your books with Form 26AS and AIS before filing. If an entry is missing or wrong, follow How To Dispute An AIS Mismatch. Freelancers carrying trading losses alongside professional income should also see F&O Loss Tax Treatment in ITR-3.
If a deductor has cut your TDS but it is not reflecting in Form 26AS, you can raise a TRACES grievance, and for a public-authority deductor you may file an RTI. Draft a clean request fast with the AI RTI Draft tool.
For the full process of drafting, filing and appealing, keep The RTI Playbook handy.
The standard rate is 10 percent on professional services, royalty, non-compete fees and director remuneration. A reduced rate of 2 percent applies to fees for technical services and to call-centre operators. Without a PAN, the rate is 20 percent.
TDS is required only once total payment in a category crosses Rs 50,000 in the financial year. Budget 2025 raised this from Rs 30,000, effective 1 April 2025. Director remuneration has no threshold.
Only if they were under a section 44AB tax audit in the previous year, meaning business turnover above Rs 1 crore or professional receipts above Rs 50 lakh. Ordinary salaried individuals do not deduct.
Yes. Section 194J is regime-independent. The deduction is made the same way regardless of which regime the payee chooses; the regime affects only the payee's final tax computation.
Reconcile it in Form 26AS and AIS, file your return claiming the TDS as credit, and any excess is refunded.
This guide is general information for AY 2026-27 and not a substitute for professional tax advice. Reviewed by the editorial desk of Dr. Shrawan Kumar Pathak.