TDS u/s 194J New Threshold limit – TDS on professional and technical services from April 1, 2025

The Finance Act 2025, as presented in Budget 2025, has introduced a key amendment to Section 194J of the Income Tax Act, 1961. This change increases the threshold limit for TDS deduction on professional and technical fees from ₹30,000 to ₹50,000. This amendment will be applicable from April 1, 2025, impacting businesses and professionals across various sectors.

Key Amendment in Section 194J

Section 194J of the Act requires deduction of tax at source on payments by any person, not being an individual or a Hindu undivided family, who pays to a resident any sum of the nature of:

• Fees for professional or technical services
• Any remuneration, fees, or commission paid to a director (excluding salary under Section 192)
• Royalty payments
• Any sum referred to in clause (va) of Section 28

Clause (B) of the proviso to sub-section (1) of Section 194J specifies the threshold amount for TDS deduction. The threshold has been increased from ₹30,000 to ₹50,000, effective April 1, 2025.

Revised Threshold Limits for TDS Deduction (Effective from April 1, 2025)

Revised TDS Rates under Section 194J (Effective from April 1, 2025)

The TDS rates under Section 194J remain unchanged:

• 2% on fees for technical services (excluding professional services) and royalty (for sale, distribution, or exhibition of cinematographic films).
• 10% on professional services, royalty (other than the specified category), and remuneration paid to directors (excluding salary under Section 192).

Who is Required to Deduct TDS Under Section 194J?

Any person (except individuals and HUFs) who makes a payment exceeding ₹50,000 in a financial year towards the following must deduct TDS:

• Fees for professional services
• Fees for technical services
• Remuneration, commission, or fees paid to company directors (excluding salary)
• Royalty payments
• Payments for non-compete agreements (Section 28(va))

Additionally, individuals and Hindu Undivided Families (HUFs) carrying out business or profession with turnover exceeding ₹1 crore (business) or ₹50 lakh (profession) in the preceding financial year are also liable to deduct TDS under Section 194J.

Examples of Payments Covered Under Section 194J

1. Professional Services:
   • Legal fees paid to an advocate or law firm.
   • Accounting and audit fees paid to a Chartered Accountant.
   • Medical consultation fees paid to a doctor.
2. Technical Services:
   • Fees paid to an IT consultant for software development.
   • Engineering consultancy services.
   • Maintenance charges for specialized equipment.
3. Royalty:
   • Payment for the right to use a copyrighted book, music, or software.
   • Licensing fees paid for patents or trademarks.
4. Non-Compete Fee (Section 28(va)):
   • Payments made to a former employee or business partner restricting them from engaging in a similar business.
   • Compensation paid to a company for not entering a particular market.

Implications of This Amendment

1. Relief for Small Businesses and Professionals: Increasing the threshold from ₹30,000 to ₹50,000 will benefit small businesses and professionals by reducing their compliance burden.
2. Lower TDS Compliance: Companies making frequent professional payments below ₹50,000 will no longer need to deduct and deposit TDS.
3. Cash Flow Benefits: Professionals and service providers receiving payments below ₹50,000 will experience reduced TDS deductions, improving cash flow.

Conclusion

The increase in the TDS threshold limit under Section 194J from ₹30,000 to ₹50,000 is a positive step by the government in Budget 2025. This amendment aligns with efforts to ease compliance requirements for small businesses and professionals while maintaining tax efficiency. Businesses and professionals should update their accounting and compliance processes to reflect this change, effective from April 1, 2025.

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