Section 194J is one of the most-tested TDS sections in CA Inter — expect at least one 4-mark question every attempt. It covers TDS that a payer must deduct when making payments for professional services, technical services, royalty, non-compete fees, and fees paid to directors (other than salary).
The big practical use: if Rajesh & Co. Pvt. Ltd. hires a CA firm for audit, pays a software consultant for IT support, or pays a director sitting fees — they must deduct TDS before releasing the payment. The threshold is ₹30,000 per financial year per payee per category. So if the CA firm is paid ₹25,000 total in the year, no TDS. Cross ₹30,000 — TDS applies from rupee one (i.e., on the entire amount, not just the excess).
Now the part students most often mix up — two different rates apply:
- 2% for fees for technical services (think IT support, engineering consultancy, managerial services) and for call centres
- 10% for professional services (CA, lawyer, doctor, architect, etc.), royalty, non-compete fees, and remuneration/fees/commission to a director (not covered under salary)
Who must deduct? Any person making the payment — company, firm, or individual. The only exemption: an individual or HUF who was not liable to tax audit under Section 44AB in the immediately preceding financial year is exempt from deducting TDS under 194J. So a salaried individual paying a doctor privately? No TDS required. But a trading firm whose turnover crossed ₹1 crore last year? Must deduct.
If the payee does not furnish their PAN, the rate jumps to 20% (or the applicable rate, whichever is higher) under Section 206AA. This is a favourite exam twist.