According to the provisions of Section 194J of ITA, an appropriate TDS must be deducted from the fees paid to an Indian resident for providing professional or technical services. If you individual fails to collect the due TDS or doesn’t pay the collected TDS deduction to the tax authorities on time, there can be severe consequences. And you should definitely avoid that. In this article, we will familiarize you with Section 194J so you can avoid those repercussions. Let’s dig in.

A Brief Introduction of Section 194J

Section 194J of the Income Tax Act, 1961, explains the criteria and rules for deducting TDS on multiple professional or technical services charges as well as royalties. Under this section, the party responsible for collecting TDS must deduct it during the payment for the professional or technical services at fair rates set by this provision.

Recent Changes Made to Section 194J

During the announcement of the Finance Bill in 2020, Section 194J was modified, and a few provisions related to TDS were changed. Here’s the list of changes you need to know about:

  • The rate of TDS deduction for technical services has been updated to be 2% of the total technical fees. Remember that this change was only applied to the technical fees. TDS deduction rate on professional fees can still be as high as 10%.
  • If an individual or HUF (Hindu Undivided Family) runs a business that generates a gross income or revenue surpassing Rs. 1 crore or earns more than Rs. Fifty lakhs by providing professional or technical services in one financial year, then an appropriate TDS needs to be deducted from the earnings according to the provisions of Section 194J of the Income Tax Act.

Service Payments That are Covered Under Section 194J

If a resident receives payment for providing any of the following services or earns money via the following means, a TDS on the gross earnings must be deducted:

  • Fees for professional services.
  • Payments received for providing technical services.
  • Money earned by directors that don’t involve his/her salaries (For instance, the sitting fees received to join the board meetings).
  • Money earned via royalty.
  • Payments that were received in the form of non-compete fees.

The TDS Deduction Rate Under Section 194J of ITA

Let’s take a look at the rate of deductible TDS under Section 194J of ITA:

                                                                  The Nature of Payments

    The Rate of TDS Deduction

Royalty earned because of the sales or distribution of cinematographic films


Payments received in exchange of technical services


Payments made to the call center operators


Every other fee covered under the provision of Section 194J, including professional fees


In case the receiver of the payment fails to provide his/her PAN card


What are the Consequences of Not Deducting TDS (or Late Deduction of TDS)

According to Section 194J of the Income Tax Act, failure to make timely TDS deduction or not deducting TDS on technical or professional service fees that crosses a certain threshold can have several repercussions. 

Expenditure Disallowance

If an organization or individual fails to make the TDS deductions on time, they will face a disallowance of 30% of the expenditure for the service obtained in the relevant FY. Once you collect the relevant TDS for an FY and bill it to the tax authorities of India, the expenditure disallowance will be lifted.

Interest Charged on TDS Deduction Failure

If you fail to collect the appropriate TDS deduction according to the provisions of Section 194J, you will be charged an interest rate of 1% per month (or per portion of a month) on the total TDS you have failed to deduct. And this will continue until you collect the due TDS deduction amount. If you fail to pay the collected TDS deduction to the tax authorities, you will be charged an interest rate of 1.5% per month on the TDS deduction you failed to pay until you pay it.


As long as an individual earns more money (via professional or technical service fees) than the threshold mentioned in the provisions of Section 194J of the Income Tax Act, an appropriate TDS deduction must be made. As the failure to do so comes with serious repercussions, you must understand every nitty-gritty of this provision. Learn about the TDS deduction rate, check to which services the TDS applies, and if the services you provide fall under the categories mentioned in this provision. This way, you can collect and file taxes on time and avoid tax penalties.