Fees for professional or technical services (Section 393(1))
| Nature of payment | New provision | Section Code | Rate | Threshold |
|---|---|---|---|---|
| Technical services (other than professional services) | Section 393(1), Table 6(iii).D(a) | 1026 | 2% | ₹50,000 |
| Royalty for sale/distribution/exhibition of cinematographic films | Section 393(1), Table 6(iii).D(a) | 1026 | 2% | ₹50,000 |
| Professional services | Section 393(1), Table 6(ii).D(b) | 1027 | 10% | ₹50,000 |
| Other specified sums under Section 26(2)(h) | Section 393(1), Table 6(ii).D(b) | 1027 | 10% | ₹50,000 |
| Director’s remuneration / fee / commission other than salary | Section 393(1), Table 6(iii).D(b) | 1028 | 10% | ₹50,000 |
Applicability:
TDS is applicable where a specified person pays a resident any sum covered by the professional/technical-service provisions.
- Fees for professional services
- Fees for technical services
- Royalty covered by the provision
- Director’s remuneration, fees or commission, other than salary
- Non-compete Fees (e.g., for not carrying out business, or not sharing know-how, patents, etc.)
Who is not liable to deduct TDS?
An individual or HUF is generally not required to deduct TDS on professional/technical fees where the payment is not covered by the specified-person requirement.
Example
Mr. Mahesh hires an event manager for his personal marriage and pays ₹1,20,000.
Since this is a personal payment by an individual, TDS under the professional-fee provision is Nil
⏳ Time of Deduction:
TDS must be deducted whichever is earlier of:
- Date of Payment
- Date of Credit to the payee’s account (including suspense or provision accounts)
Professional Services:
Professional services broadly include services rendered in connection with professions such as:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Film artist
- Company Secretary
- Authorised representative
- Certain other notified professional services.
Technical Services:
Technical services generally cover services of a:
- Managerial nature
- Technical nature
- Consultancy nature
Royalty:
Royalty may cover consideration for rights or use relating to matters such as:
- Transfer of rights or usage of an invention, model, design, trademark, patent, etc.
- Use of patents, inventions, designs, etc.
- Provide any information related to using an invention, patent, formula, etc.
- Transfer of rights related to scientific findings, literary work, films or videotapes for radio broadcasting but does not include consideration for the sale, exhibition, or distribution of cinematographic films.
- Providing any information related to technical, industrial, commercial or scientific knowledge, experience or skill.
Non-compete Fees
Paid to restrict a person from:
- Engaging in a business/profession
- Sharing technical knowledge, trademarks, licenses, etc.
Exclusions:
- Pure Reimbursements: If raised separately and no profit element, TDS not applicable.
- Machine-based or automated services with no human effort = Not covered under “technical services”.
- Personal Services paid by Individual/HUF = TDS not applicable.
Rate of TDS:
- 2% in case of fees for technical services (not being professional services) or royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films; and
- 10% in other cases.
Threshold limit:
| Particulars | Rate | Threshold | New Section Code |
|---|---|---|---|
| Professional services | 10% | ₹50,000 | 1027 |
| Technical services | 2% | ₹50,000 | 1026 |
| Royalty – cinematographic films | 2% | ₹50,000 | 1026 |
| Other applicable royalty | 10% | ₹50,000 | 1027 |
| Director’s fees/commission | 10% | ₹50,000 | 1028 |
| Other specified sums | 10% | ₹50,000 | 1027 |