Legal Reference
Section 399 (TDS on professional/technical fees — 194J equivalent), ITA 2025 | Threshold Rs 30,000/year | Rate: 10% professional, 2% technical services/call centre
1. Overview: TDS on Professional and Technical Fees
Any person (other than an individual/HUF not subject to tax audit) who pays fees for professional or technical services must deduct TDS under Section 399 of the Income Tax Act, 2025. This section covers a wide range of payments — from doctor and lawyer fees to software consultancy, management consultancy, and call centre operations.
2. Who Must Deduct TDS Under Section 399?
TDS under Section 399 must be deducted by:
- Companies (domestic and foreign)
- LLPs and partnership firms
- Individuals and HUFs who are subject to tax audit (turnover above threshold)
- Government departments and PSUs
Individuals and HUFs who are NOT subject to tax audit are exempt from deducting TDS under Section 399 — they can pay professional fees without deducting TDS.
3. TDS Rates Under Section 399
| Nature of Payment | TDS Rate |
|---|
| Professional services (doctor, lawyer, CA, architect, engineer, consultant) | 10% |
| Technical services (IT support, maintenance, technical consultancy) | 2% |
| Royalty (for use of patents, know-how, copyright) | 10% |
| Non-compete fees (payment for not competing) | 10% |
| Call centre operations | 2% |
| Director remuneration (not salary) | 10% |
4. Threshold: Rs 30,000 Per Year
TDS is applicable only when the total payment to a single payee in a Tax Year exceeds Rs 30,000. The threshold applies separately for professional services and technical services — so Rs 30,000 professional + Rs 30,000 technical from the same vendor both need separate assessment. Once the threshold is crossed, TDS applies to all payments (including the first Rs 30,000 already paid).
Common Mistake
Many businesses deduct TDS only on the amount above Rs 30,000 threshold. This is WRONG. Once the threshold is crossed, TDS applies to the ENTIRE amount paid during the year — including what was paid before the threshold was hit. Recompute and deduct the shortfall from the next payment.
5. Professional vs Technical: Key Distinction
The 10% vs 2% distinction is significant. Professional services involve individual expertise — a doctor examining a patient, a CA auditing books, a lawyer drafting a contract. Technical services involve applying technical knowledge that does not require the personal involvement of a specific individual — automated IT maintenance, cloud hosting support, technical helpdesk. When in doubt about classification, 10% is safer to avoid short deduction.
6. Practical Example
Illustrative only. ABC Pvt Ltd pays Rs 80,000 to a CA firm for tax audit services in Tax Year 2026-27. TDS computation: Rs 80,000 × 10% = Rs 8,000. The company pays Rs 72,000 to the CA and deposits Rs 8,000 to the government by the 7th of the following month. Form 26Q is filed quarterly reflecting this deduction. The CA claims Rs 8,000 TDS credit in their ITR.
7. Higher TDS if No PAN
If the professional or consultant does not provide their PAN, TDS must be deducted at 20% (higher of normal rate or 20%) under Section 406. Always collect PAN before making payments to avoid this penalty rate — which also burdens the payee who then has to claim a larger refund.
8. Why TaxClue
Correct classification between professional (10%) and technical (2%) services, applying the right threshold, and timely deposit are all critical for Section 399 compliance. TaxClue provides TDS advisory, deduction computation, and quarterly return filing. Contact us for TDS compliance under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
Need Help with Compliance?
Our CA experts guide you through the entire process — registration to filing.
❓ Frequently Asked Questions
What is TDS on professional fees under ITA 2025?
Under Section 399 of the Income Tax Act, 2025, TDS must be deducted at 10% on payments for professional services (CA, doctor, lawyer, architect, engineer, consultant) and at 2% for technical services (IT support, maintenance, technical helpdesk, call centres) when the annual payment to a single payee exceeds Rs 30,000. The deductor must deposit TDS by the 7th of the following month and file Form 26Q quarterly.
What is the difference between professional and technical services for TDS?
Professional services require personal expertise of a specific individual — a CA auditing accounts, a doctor treating a patient, a lawyer advising on a case. The TDS rate is 10%. Technical services involve applying technical knowledge that does not require personal involvement — software support, cloud hosting, equipment maintenance, helpdesk operations. The TDS rate is 2%. The distinction matters significantly — misclassifying technical as professional results in 8% excess deduction.
What is the TDS threshold for professional fees?
Under Section 399 of ITA 2025, TDS on professional/technical fees applies only when the total payment to a single payee in a Tax Year exceeds Rs 30,000. Once this threshold is crossed, TDS applies to the entire amount paid during the year — not just the excess over Rs 30,000. The threshold is assessed separately for professional fees and technical fees — they do not aggregate for this purpose.
What is TDS on director remuneration?
Director remuneration that is not in the nature of salary (i.e., sitting fees, commission, consulting fees paid to non-executive directors) is subject to TDS at 10% under Section 399 of ITA 2025. There is no monetary threshold — TDS applies from the first rupee. Salary paid to whole-time directors and managing directors is covered under Section 391 (TDS on salary) at the applicable slab rate, not Section 399.
Can a freelancer avoid TDS on professional fees?
A freelancer cannot prevent the payer from deducting TDS — that is the payer obligation. However, if the freelancer expects their total tax liability to be lower than the TDS deducted, they can apply for a lower TDS certificate under Section 398 of ITA 2025. Alternatively, the TDS deducted appears in the freelancer Form 26AS and is credited against their total tax liability when filing ITR, resulting in a refund if TDS exceeds actual tax.
