10% professional fees (CA, doctor, lawyer, consultant). 2% technical services + call centres. ₹30K threshold. Freelancers: 44ADA presumptive + claim TDS refund.
SECTION 194J TDS: (1) PROFESSIONAL FEES: 10%. (2) TECHNICAL SERVICES: 2% (reduced from 10% in 2020). (3) ROYALTY: 10%. (4) NON-COMPETE fees: 10%. (5) DIRECTOR fees: 10%. (6) CALL CENTRE operators: 2%. THRESHOLD: ₹30,000 per category per FY (no TDS below). NO PAN: 20% TDS. EXAMPLE: ₹1L consultant fee. (a) TDS 10% = ₹10K. (b) Net paid ₹90K. (c) Consultant claims TDS credit in ITR.
194J DISTINCTION (rate differs): (1) PROFESSIONAL SERVICES (10%): legal (lawyers), medical (doctors), engineering, architecture, accountancy (CA), technical consultancy, interior decoration, advertising. (2) TECHNICAL SERVICES (2%): managerial, technical, consultancy of technical nature, call centres. KEY: 2020 reduced TECHNICAL to 2% (was 10%). Professional stays 10%. EXAMPLE: (a) CA audit fee: 10%. (b) IT technical support: 2%. STRATEGIC: classify correctly — rate differs 5x.
FREELANCER/CONSULTANT under 194J: (1) CLIENTS deduct 10% TDS on professional fees > ₹30K. (2) Freelancer receives net (after TDS). (3) CLAIMS TDS credit in ITR (Form 26AS). (4) REFUND if total tax < TDS. (5) Section 44ADA presumptive (50% deemed profit) option for professionals < ₹75L. EXAMPLE: ₹10L annual freelance income, ₹1L TDS deducted. (a) Under 44ADA: 50% = ₹5L taxable. (b) Tax ~₹12K (with deductions). (c) REFUND ₹88K (excess TDS). STRATEGIC: freelancers often get refunds — file ITR.
194J DEDUCTOR COMPLIANCE: (1) TAN registration required. (2) DEDUCT TDS at payment/credit (whichever earlier). (3) DEPOSIT by 7th of next month. (4) FILE quarterly TDS return (Form 26Q). (5) ISSUE Form 16A to deductee. (6) LATE: 1% (deduction delay) + 1.5% (deposit delay) per month + Section 234E ₹200/day. (7) DISALLOWANCE Section 40(a)(ia): 30% expense disallowed if TDS not deducted. STRATEGIC: businesses paying professionals must comply. Penalty + disallowance costly.
194J STRATEGY: FREELANCERS: (1) Provide PAN (avoid 20% TDS). (2) Section 44ADA presumptive if < ₹75L (50% deemed profit). (3) Claim TDS refund via ITR. (4) Lower TDS certificate (Section 197) if income low. (5) GST registration if > ₹20L. BUSINESSES (deductor): (1) TAN + timely deduction. (2) Correct classification (10% professional vs 2% technical). (3) Quarterly Form 26Q. (4) Form 16A to vendors. (5) Avoid Section 40(a)(ia) disallowance. STRATEGIC: classify services correctly. Freelancers track TDS for refunds. CONSULT CA for high-value professional payments.