TDS on professional fees: rates, threshold and who deducts it

The threshold rose from ₹30,000 to ₹50,000 on 1 April 2025, and applies separately to each category. If the payee has no valid PAN, or the PAN is inoperative, the rate is 20%.

• Every company, LLP, firm, trust, society and government body.
• Individuals and HUFs whose business or professional turnover crossed the tax audit limits in the previous year (₹1 crore for business, ₹50 lakh for a profession).
• An individual or HUF not under audit does not deduct under this provision. But if they pay contractors or professionals more than ₹50 lakh in a year, a separate 2% deduction applies, paid through a PAN-based challan with no TAN (formerly section 194M).

Deductors need a TAN; see our TAN registration guide.

The 10 versus 2 percent split causes most disputes. A professional service involves a notified profession and personal skill, such as legal advice, an audit, an architect’s design. A technical service is managerial, technical or consultancy work that is not a notified profession, such as maintenance of equipment by an engineer, cloud hosting support, or testing. When the contract mixes both, the safer course is to deduct 10%, since under-deduction brings interest and disallowance while over-deduction only delays the payee’s refund.

Payments for software licences are usually royalty. Payments to an agency supplying manpower are usually contract work, where 1 or 2 percent applies instead under the old section 194C.

• GST: where GST is shown separately on the invoice, TDS is deducted on the amount excluding GST.
• Reimbursements: out-of-pocket expenses billed separately with supporting bills are generally excluded; a lump-sum fee including expenses is not.
• Timing: tax is deducted when the amount is credited to the payee’s account (including a provision at year-end) or paid, whichever is earlier.
• Deposit: by the 7th of the next month (30 April for March).
• Return: quarterly in Form 140 (formerly 26Q); the certificate to the payee is now Form 131 (formerly 16A). Due dates are in our TDS due dates guide.

Payees receiving professional fees should check that the TDS appears in their Form 26AS and AIS before filing; see our Form 26AS guide.

A private limited company engages a CA firm for ₹40,000 in June and ₹35,000 in December, both plus 18% GST shown separately. The first bill is below ₹50,000, but the company expects the year’s total to cross it, and once it does, TDS applies to the entire amount paid in the year.

• June: no TDS deducted if the company is not sure the threshold will be crossed.
• December: total for the year ₹75,000, above ₹50,000. TDS at 10% on ₹75,000 = ₹7,500 is deducted from the December payment, excluding the GST.
• Deposit by 7 January; report in the Q3 26Q; issue Form 131 to the CA firm.

The safer practice for a known recurring professional is to deduct from the first bill, which avoids a large catch-up deduction later.