Section 194J: A Comprehensive Guide 2025

Section 194J of the Income Tax Act, 1961 is one of the most significant provisions affecting professionals, consultants, and businesses in India when it comes to Tax Deducted at Source (TDS) obligations in 2025. As the gig economy and freelance services are growing at a rocketing pace, people, entrepreneurs, and business must know the norms of the Section 194J, its applicability, and the compliance needed.

This paper provides an overall description of Section 194J including its important details, the latest rates, its applicability, first-hand practical experiences, and, examples to explain the working of the TDS on professional and technical services in India.

What is Section 194J and Why is it relevant in 2025?

As per Section 194J, any person (except individuals or HUFs not liable to tax audit) making payments to a resident for certain specified services must deduct TDS at prescribed rates. These payments relate to services fees paid towards professional services, technical services, royalty and non-compete fees.

In 2025, Section 194J will be increasingly relevant since a larger number of Indian companies and startups continue to use the services of experts, consultants, and domain specialists. It makes it possible to collect taxes on time especially on individuals in the profession and also increases tax compliance by businesses.

Major points of section 194J in 2025:

• Who needs to deduct TDS: All businesses and professionals (excluding individuals and HUFs not under tax audit) making payments on qualifying services
• When to deduct: At the earlier of the credit or payment time
• Where it is used: Only to payments to Indian residents

Other questions people raise are:

Q: Does as Section 194J of the TDS apply to services outside India?
No, Section 194J only comes into effect when paying a resident of India of the stated services.

Section 194J: What are Professional Services and covered under Section 194J?

Section 194J deals with many more services than just consultancy. The principal ones are:

• Formation of professional services: law, medics, engineering, architectural, accountancy, technical, consultancy, interior decoration, advertisement, film artists, company secretaries and information technology.
• Technical services: Managerial, technical, or consultancy services (excluding those covered under Section 192, i.e., employer-employee relationship)
• Royalty: under the Income tax act
• Non-compete fees: Payments based on no exchange of know how, patents, trademarks, copyright or any commercial rights

This has increased over time as more variations of freelance and consulting work are created and one should consider the nature of each payment made before imposing TDS.

Enough features are worth mentioning:

• TDS is applicable under the remote or digital delivery of the service.
• Technical testing and software development make up part of payments covered under Section 194J; financial advisory, management assistance, or research and analysis as well.
• Fee of doctors, lawyers, CA, architects among all other whose names are mentioned specifically as professionals.

Factoid:

Since FY 2025, a number of online marketplaces are automatically withholding TDS on payments made by the platforms to counselors through automated systems in an effort to protect compliance.

In which ways are TDS Rates and thresholds defined under Section 194J 2025?

Key Highlights:

• No surcharge/cess on TDS: Only basic rate to be charged at deduction stage.
• Lower TDS rate (2 percent) for technical services: Distinction brought in to reduce ambiguity for IT and technical contract payments.
• Annual aggregation: Threshold is imposed on sum total of payments in a year by the deductor to a payee.

Example:
In case a business incurs INR 40000 during the year with a web development consultant, 2 percent TDS deduction on technical services would be applicable as the said amount is more than 30000.

Q. Does GST come in the computation of threshold or TDS value?
A: TDS is to be withheld on the total invoice value (plus GST), in case of a contract price includes GST.

What are Section 194J Practical Steps and Compliance Requirements?

If your business is required to make a payment that is subjected to TDS under Section 194J, all you need to do is to:

• Obtain PAN of the payee: Always collect the PAN to avoid higher TDS (20 percent) for non-furnishing.
• TDS deduction timeline: TDS be deducted when credit is made or when actually paid, whichsoever is earlier.
• TDS deposit: Release the TDS cut deposited to the Government by 7th of next month.
• TDS return filing: TDS returns should be filed as per Qtr wise in Form 26Q.
• TDS certificate: Issue Form 16A (TDS certificate) to the payee within 15 days from TDS return due date.
• Reporting in books: Report the TDS that is deducted properly in your accounting/tax statements.

Best Practices:

• To comply without any difficulties, use an accounting software or services of a tax consultant.
• Consider availing the help of online market places where payments can be handled multiple times and even digital tools are present to manage TDS (Section 194J) automatically.

Pros:

• Auto-population of TDS in Form 26AS of recipients
• Furnishes easy and smooth reporting of income of professionals

Cons:

• Failure will mean penalties and disallowance of expenses
• The PAN collection and handling of quarterly returns may be cumbersome in case of frequent payment
• Especially in this age of online shopping when a person can just make a plain vanilla payment m-commerce, which is online shopping, should have provided this convenience but it fails to do so
• Nowadays there is a facility to subscribe to catalogs which is a monthly subscription of goods however, the catalog subscription is not a very healthy way of doing it

Expert insight:

Most SaaS applications and marketplaces in India, now include TDS deduction and reconciliation embedded into their systems, which save businesses a lot of manual work.

Whoever is Exempt or Not Liable to Deduct TDS under Section 194J?

Payments or payers do not always have to take TDS regarding such a section. Exempt are the following:

• There is non-liability of tax audit by persons or HUFs:
  If total business turnover in previous year was below the audit threshold (INR 1 crore for business, INR 50 lakh for profession in 2025), then there is no need to deduct TDS.
• The sub-threshold aggregate payments:
  When professional or technical fees paid to one individual member in the financial year is below INR 30000 in overall, then no taxes are payable.
• Remunerations to banks or informed establishments:
  Payments to which notifications may make exceptions include payments to banking companies or payment within government.

Q Does the Section 194J cover pure reimbursements of expenses?

A: No, when there is no element of profit in expenses received at actuals and substantiated by receipts there is no TDS.

What Makes Section 194J Unique compared to other TDS Sections such as section 194C or 194H?

Another general misunderstanding that occurs is that of identifying when to take away TDS under Section 194J or under some other similar section:

Tips: When the payment is on intellectual of specified professional effort it is within 194J. The supply or works contract that is ordinary is under 194C. I would always make the nature of service understandable in your contracts.

Where are the Penalties and Consequences of Non-Compliance under Section 194J?

Inability to follow the Section 194J provisions may have severe results:

• On late deduction/deposit interest:
  1 percent/month delay in deduction. 1.5 percent/month delay in deposit.
• Non-deduction of expense:
  If TDS is not deducted/deposited, 30 percent of the expense is disallowed under Section 40(a)(ia).
• Fine and prosecution:
  Amounts of upto TDS and prosecution in worst case.

Best Practice:

You should always make sure to track and deposit timely. Penalties of INR 200 every day can be faced in case of missing TDS returns.

Surprising!

Businesses receiving auto-reminders about TDS obligations inside of Section 194J through some online accounting tools starting FY 2025 will reduce the number of missed deadlines.

First-Hand Experience: Lessons of the Indian Businesses and professionals

The experiences of Section 194J have shown some common experiences by businesses and professionals over the years:

• Certainty of the type of services: Startups are not known to have any certainty on whether software or digital services are technical or professional.
• Volume Control: Companies operating Professionals should have effective systems to monitor payment at the limit levels.
• International scope: There are situations when platforms or companies with international presence become confused in such a way that they do or do not pay TDS because of the residential status.

Practitioners tips:

• Have a maintained and consistent vendor master inclusive of PAN and professional services information.
• Be transparent in service contracts in terms of nature of work.
• Keep track of consulting payments, TDS deductions and documentation at a central location with the help of digital tools and online marketplaces.

Expert insight:

Some chartered accountants suggest availing the services of online market space where one could compare the payroll and compliance packages side by side which saves hours of monthly endeavors by Indian SMEs.

About Section 194J- Payers and Payees Pros and Cons

Pros:

• Makes sure a stable flow of revenue to Government on a timely basis.
• Automatically validates recipients and income tax reporting tax credits.
• Makes work online and via the Internet easier, because even when paying on platforms, TDS is withheld.

Cons:

• A headache to new businesses or startups particularly to hybrid services.
• Extra paper work and compliance by the payers.
• Delay in TDS credit would be reflected in Form 26AS in the situation that TDS is not deposited in time.

TLDR in case you need a quick recap on Section 194J in 2025

• TDS is required to be deducted under Section 194J and it applies to payment of professional, technical and royalty and non-compete services to resident.
• Rates on TDS: Professional-10 percent and technical-2 percent, exceeding annum 30,000 a single payee.
• Apparently to all businesses except small individual or HUFs not subject to tax audit.
• Depending on non-compliance, penalties, interest and profits disallowance can be imposed.
• There are online market platforms that provide means of automating and simplifying the TDS under Section 194J.

FAQs about Section 194J

Q1: Is it possible to make certain people who pay fees to a professional taxable to deduct the TDS under Section 194J?
No, the individuals or HUFs are to deduct TDS under Section 194J only in those cases where their turnover in the preceding financial year is above its audit limit. The rest of others are not liable.

Q2: But in case the payee fails to provide PAN?
In a situation where a payer of PAN does not recognize its PAN, TDS has to be calculated at the higher rate of twenty percent.

Q3: Is TDS applicable on reimbursement to professionals?
No, provided when separately billed they were so supported.

Q4: Is it possible to obtain lower or nil TDS certificate under section 197?
Yes, the payee may apply in order to get certificate of lower or no TDS and submit the certificate to the payer.

Q5: What is the way of verification whether TDS is deposited correctly?
Credited TDS could be verified by the professionals at the TRACES portal in Form 26AS.

Q6: Can Section 194J be applied to payment involved in purchase of software?
If the payment is for customized software development (a service), then yes; if for off-the-shelf software, Section 194J may not apply.

Section 194J is even more navigable in 2025 as digital tools continue to expand and the online market of consultants services is going to be convenient and so is professional help. Whenever paying on a regular basis, it is always advisable to make an inquiry on new details and even compare the alternatives or consult the expert before undertaking the tax compliance process.

Sources:

• Income Tax, India
• Circulars/Notifications issued by CBDT