TDS threshold for professional services 2025 -TDS threshold for technical services 2025
TDS u/s 194J: New
Threshold Limit for Professional and Technical Services from April 1, 2025
The Finance Act
2025, as announced in Budget 2025, has introduced a significant amendment to
Section 194J of the Income Tax Act, 1961. This amendment increases the
threshold limit for Tax Deducted at Source (TDS) on professional and technical
fees from ₹30,000 to ₹50,000. The revised threshold will be effective from
April 1, 2025, impacting businesses and professionals across various sectors.
Key Amendment in
Section 194J
Section 194J
mandates TDS deduction on payments made by any entity (excluding individuals
and Hindu Undivided Families) to a resident for the following:
· Fees for professional or
technical services
· 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, which has now been increased from ₹30,000 to ₹50,000, effective
April 1, 2025.
Revised Threshold
Limits for TDS Deduction (Effective April 1, 2025)
|
Nature of Payment |
Current Threshold (₹) |
Proposed Threshold (₹) |
|
Fees for
professional services |
30,000 |
50,000 |
|
Fees for
technical services |
30,000 |
50,000 |
|
Royalty |
30,000 |
50,000 |
|
Payments
under Section 28(va) |
30,000 |
50,000 |
TDS Rates Under Section
194J (Unchanged)
The applicable TDS
rates remain as follows:
· 2% on fees for technical services (excluding
professional services) and royalty related to the sale, distribution, or
exhibition of cinematographic films.
· 10% on professional services,
royalty (other than specified categories), and remuneration paid to directors
(excluding salary under Section 192).
Who is Required to
Deduct TDS Under Section 194J?
TDS must be
deducted by any person (excluding individuals and HUFs) making payments
exceeding ₹50,000 in a financial year for:
· Professional services
· Technical services
· Remuneration, commission, or
fees paid to company directors (excluding salary)
· Royalty payments
· Non-compete fees under
Section 28(va)
Additionally, individuals
and Hindu Undivided Families (HUFs) engaged in business or profession with a
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
The increase in the
threshold from ₹30,000 to ₹50,000 reduces the compliance burden for small
businesses and professionals.
2.
Lower TDS Compliance Requirements
Companies making
professional payments below ₹50,000 will no longer need to deduct and deposit
TDS, reducing paperwork and administrative costs.
3.
Improved Cash Flow for Professionals
Service providers
receiving payments below ₹50,000 will experience reduced TDS deductions,
leading to better cash flow management.
Conclusion
The increase in the TDS threshold limit under Section 194J is a welcome move by the government in Budget 2025. It simplifies compliance for small businesses and professionals while maintaining tax efficiency. Businesses and professionals should update their accounting systems and compliance processes accordingly, as the revised threshold will be effective from April 1, 2025.
DISCLAIMER
Airfinac.com, its author/writer and associates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.