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The 2-Minute Summary
Section 194J under the old Act covered TDS on professional fees, technical services, director fees, and royalties. Under the Income Tax Act 2025, this is Section 393(1) Sl. No. 6(iii). The provision has two distinct rates depending on what is being paid.
Technical services, call centres, and certain royalties attract TDS at 2%. Everything else, including professional fees, director remuneration, royalties not covered at 2%, and non-compete fees, attracts TDS at 10%.
The threshold is Rs. 50,000 per category per Tax Year. There is no threshold for director fees at all.
Example: A company pays Rs. 1,20,000 to a chartered accountant for audit services (professional fees). TDS = 10% = Rs. 12,000.
Example: The same company pays Rs. 80,000 for annual maintenance of its IT systems (technical services). TDS = 2% = Rs. 1,600.
Example: The company pays Rs. 50,000 as sitting fees to a non-executive director. Threshold is nil for director fees. TDS = 10% = Rs. 5,000 on the full amount from the first rupee.
Under Income Tax Act 1961: Section 194J of the Income Tax Act 1961. Now Section 393(1) Sl. No. 6(iii) of the Income Tax Act 2025. Rate split between 2% and 10% introduced from earlier amendment; continued in 2025 Act.
At a Glance
| Item | Details |
| New Act Reference | Section 393(1), Sl. No. 6(iii) of Income Tax Act 2025 |
| Old Act Reference | Section 194J of Income Tax Act 1961 |
| Who Deducts | Specified person |
| Rate: Technical services / call centre / film royalty | 2% |
| Rate: Professional fees / director fees / other royalty / non-compete | 10% |
| Threshold: Professional fees, technical services, royalty, non-compete | Rs. 50,000 per Tax Year |
| Threshold: Director fees | Nil (TDS from first rupee) |
| When to Deduct | At credit or payment, whichever is earlier |
| Form for TDS Certificate | Form 16A |
| TAN Required | Yes |
The Two-Rate Structure in Detail
Section 393(1) Sl. 6(iii) contains a specific rate table:
| Category | Rate |
| Fees for technical services (not being professional services) | 2% |
| Royalty in nature of consideration for sale, distribution, or exhibition of cinematographic films | 2% |
| Payee engaged only in the business of operation of call centre | 2% |
| Fees for professional services | 10% |
| Royalty other than film royalty covered above | 10% |
| Remuneration/fees/commission to a director of a company (other than salary TDS under Section 392) | 10% |
| Any sum referred to in Section 26(2)(h) — non-compete fees / non-solicitation payments | 10% |
What are Professional Services
Professional services are services rendered by a person in the course of carrying on a legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising profession, or any other profession as notified by the Board.
Key professions covered: lawyers, doctors, CAs, engineers, architects, management consultants, technical consultants, interior designers, and advertising professionals.
Example: Payments to a lawyer for legal opinion, a CA for audit, a doctor for medical examination services to employees, an architect for building design, all attract 10% TDS under professional services.
What are Technical Services
Technical services means services rendered in connection with technical or other problems. The Supreme Court has held that technical services require specialised knowledge or skill in a technical field. Examples:
- Annual maintenance contracts (AMC) for software or machinery.
- IT support and helpdesk services.
- Testing and calibration services.
- Network monitoring services.
- Data processing services.
The distinction between professional services (10%) and technical services (2%) matters significantly. A software developer building custom software may argue technical services (2%). An IT consultant providing strategic IT advice may be professional services (10%). The nature of the engagement determines the rate.
Note: Where TDS has been deducted at 2% (technical services) but the correct rate was 10% (professional services), the department may raise a demand for the shortfall plus interest.
Director Fees: No Threshold
Any remuneration, fees, or commission paid to a director (other than salary covered under Section 392) has no threshold limit. TDS at 10% applies from the very first rupee. This covers:
- Sitting fees for attending board meetings.
- Commission on profits paid to non-whole-time directors.
- Fees paid to independent directors.
- Reimbursement of expenses that are over and above actual cost (i.e., have a profit element).
Example: A company pays Rs. 10,000 as sitting fees to each independent director for attending a board meeting. TDS = 10% = Rs. 1,000 per director, deducted before payment.
Royalty: Two Rates
Royalty is split into two categories:
- Royalty for sale, distribution, or exhibition of cinematographic films: 2% TDS.
- All other royalty (software royalty, patent royalty, trademark royalty, know-how payments, literary royalty): 10% TDS.
Example: A film production company pays Rs. 5 lakh as distribution royalty to a content creator for streaming rights. TDS = 2%. A software company pays Rs. 3 lakh as licensing fee (royalty) for use of a foreign software. TDS = 10%.
Personal Use Exemption
If an individual or HUF makes payment for professional or technical services for personal use (not for business or profession), TDS is not required even if they are a specified person by reason of turnover.
Example: A doctor whose clinic receipts exceed Rs. 50 lakh hires a lawyer for a personal property dispute. The legal fee is for personal use, not for the clinic. No TDS is required on this payment.
Practical Compliance Checklist
- Identify the nature of each payment before applying the rate. Technical services (2%) and professional services (10%) are often confused. When in doubt, apply 10% to be safe.
- For director fees: there is no threshold. Deduct 10% from the first sitting fee. Do not wait for a cumulative amount.
- For royalty: identify whether it is film royalty (2%) or other royalty (10%) before deducting.
- If you are paying both professional fees and technical service fees to the same vendor in a year: compute TDS separately on each category. They have independent thresholds.
- If you receive a lower TDS certificate from the payee under Section 395: apply the certificate rate.
Section 194J / Sl. 6(iii) covers a very wide range of payments that most businesses make regularly. Legal fees, audit fees, IT maintenance, director remuneration — these are everyday transactions. Getting the rate right (2% vs 10%) and tracking the Rs. 50,000 threshold per vendor per year are the two most important habits for compliance.
