TDS on Professional Fees (Latest Income Tax Act 2025)
TDS on Professional Fees – Simple Guide (Latest Income Tax Act 2025)
Whenever a business pays fees to a professional such as a CA, CS, lawyer, doctor, engineer, architect, consultant or advisor, it may have to deduct TDS (Tax Deducted at Source).
Earlier, this was mainly covered under Section 194J of the Income-tax Act, 1961. Under the new Income-tax Act, 2025, the provision has been reorganised and is now covered under Section 393.
What is TDS on Professional Fees?
TDS means a small amount of tax is deducted before making payment to the professional.
For example, if a company has to pay ₹1,00,000 to a consultant and the TDS rate is 10%, the company will deduct ₹10,000 and pay ₹90,000 to the consultant. The deducted amount is deposited with the Government as TDS.
The consultant can later claim this amount as tax credit while filing the income tax return.
Which Section Applies Now?
For transactions up to 31 March 2026, professional fee TDS was generally covered under Section 194J.
For transactions from 1 April 2026 onwards, the relevant provision is Section 393 of the Income-tax Act, 2025.
What Payments Are Covered?
TDS may apply on:
- Professional services
- Technical services
- Royalty
- Non-salary fees or commission paid to a company director
- Other specified payments under the Act
Examples of Professional Services:
- Chartered Accountant
- Company Secretary
- Lawyer
- Doctor
- Engineer
- Architect
- Management consultant
- Interior designer
- Advertising professional
TDS Rate on Professional Fees:
Professional fees generally attract TDS at 10%.
If a company pays ₹1,00,000 as professional fees, TDS will generally be ₹10,000.
TDS Rate on Technical Services:
Technical services generally attract TDS at 2%.
If a company pays ₹1,00,000 for technical services falling under this category, TDS will generally be ₹2,000.
Threshold Limit:
The threshold limit for professional fees, technical fees, royalty and similar covered payments is ₹50,000.
If the total payment during the financial year does not exceed ₹50,000, TDS may not be required.
For example, if a company pays ₹40,000 to a consultant during the year, TDS may not apply. If the payment becomes ₹60,000, TDS will apply.
Important: No Threshold for Director Fees
If a company pays sitting fees, commission or other non-salary remuneration to a director, the ₹50,000 threshold is not available.
Even a small payment may attract TDS.
For example, director sitting fees of ₹10,000 should be checked for TDS.
When Should TDS Be Deducted?
TDS should generally be deducted at the earlier of:
- When the expense is booked in the accounts
- When the payment is actually made
For example, if an invoice is booked on 25 June and paid on 10 July, TDS liability arises on 25 June because the expense was booked earlier.
Who Has to Deduct TDS?
Generally, companies, LLPs, partnership firms and specified individuals or HUFs making business or professional payments must check whether TDS is applicable.
For purely personal payments, TDS is generally not required.
For example, personal medical fees paid by an individual to a doctor normally do not require TDS.
Is TDS Deducted on GST?
If GST is shown separately in the invoice, TDS is generally calculated on the amount excluding GST.
For example, if professional fees are ₹1,00,000 and GST is ₹18,000, TDS at 10% is generally calculated on ₹1,00,000, not on ₹1,18,000.
Due Date for TDS Payment:
TDS deducted during a month is generally deposited by the 7th of the next month.
TDS deducted in March is generally deposited by 30th April.
Late payment may attract interest and penalties.
TDS Return Filing:
After deducting and depositing TDS, the deductor must file a TDS return.
The details then appear in the recipient’s Form 26AS / AIS / TIS, allowing the recipient to claim TDS credit.
If PAN Is Not Provided:
If the professional does not provide a valid PAN, TDS may be deducted at a higher rate.
Both the payer and the professional should ensure the PAN is correct.
Practical Example:
Suppose a company receives an invoice from a practising Company Secretary:
- Professional fees: ₹75,000
- GST: ₹13,500
- Total invoice: ₹88,500
Since professional fees exceed ₹50,000, TDS is applicable.
TDS at 10% will be ₹7,500.
The company will pay ₹81,000 to the professional and deposit ₹7,500 as TDS.
Common Mistakes:
- Not deducting TDS after crossing ₹50,000
- Using the wrong TDS section
- Deducting TDS only at payment time
- Ignoring director sitting fees
- Deducting TDS on GST when GST is separately shown
- Wrong PAN reporting
- Late TDS deposit
- Late TDS return filing
- Not issuing TDS certificate
Professional Fees vs Contract Payment:
Professional fees are paid for specialised knowledge, advice or consultancy.
Contract payments are generally for execution of work, labour supply or carrying out a contract.
Examples:
- CA audit fees – Professional fees
- Legal advisory – Professional fees
- Housekeeping contract – Contract payment
- Manpower supply – Contract payment
The classification depends on the actual nature of work, not just the invoice wording.
Why TDS Compliance Matters?
For the payer:
- Avoids interest and penalties
- Prevents disallowance of expenses
For the professional:
- Ensures proper TDS credit
- Avoids tax mismatch issues
Final Summary:
Under the Income-tax Act, 2025, TDS on professional fees is covered under Section 393. The general TDS rate for professional fees is 10%, while technical services generally attract 2%.
The usual threshold limit is ₹50,000, but director non-salary payments do not get this benefit.
Before making or receiving any professional payment, always check the service type, threshold, TDS rate, PAN details, GST breakup and timing of deduction. Proper TDS compliance helps avoid notices, penalties and tax credit problems later.
Disclaimer:
This article is for educational and awareness purposes only and should not be considered professional tax, legal, or financial advice.
