TDS on Professional Fees 2026: Section 393 Rates

TL;DR Summary:
1. The Income Tax Act, 2025, replaces the old 1961 Act from 1 April 2026.
2. Professional fees now fall under Section 393, not Section 194J.
3. You must deduct TDS at 10% once the total annual payment to a professional crosses ₹50,000.
4. Technical services (IT support, call centres) are taxed at 2% under a separate code (1026).
5. Use the correct payment code: 1027 for professionals and 1026 for technical services.
6. Deposit TDS online using Challan 281 by the 7th of next month.
7. Issue Form 131 (not old Form 16A) to the professional after filing your return.
8. An incorrect code or non‑deduction can lead to a30% expense disallowance and daily penalties. 9. Small individuals/HUFs with turnover below ₹1 crore are exempt from deducting TDS.

From April 2026, TDS on professional fees falls under Section 393 of the Income Tax Act 2025 — 10% for CA, legal, and medical fees (Code 1027) and 2% for technical services like IT support and call centres (Code 1026) — once cumulative payments to a single payee exceed ₹50,000 in a tax year; deposit by the 7th of the following month via Challan 281 and file quarterly returns in Form 140. Non-deduction attracts 30% expense disallowance, 1% monthly interest, and a penalty equal to the TDS amount — and without PAN, the rate rises to 20%.

The TDS on professional fees limit has not changed in 2026, but a lot around it has. This includes section number, forms, filing codes, and the governing law itself.

From 1 April 2026, the Income Tax Act 2025 is in force, replacing the 1961 Act and consolidating TDS provisions under the new Sections.

This guide covers all you need to know about the updated TDS on professional fees. Find out the updated threshold, rates, who must deduct, how to pay online, when to issue TDS certificates, and what happens if you miss the deadline.

What Changed in TDS from 1 April 2026? (New Income Tax Act)

The Income-tax Act, 2025 completely replaces the 1961 Act from 1 April 2026. It has consolidated TDS deduction for different kinds of transactions into Sections 392 and 393.

For example: for all non-salary paymentsInstead of searching through multiple sections, you now look at one place: Section 393.

It contains several tables that list the payment type, threshold, and rate. For professional fees, you will find it in Table 1 of Section 393(1).

Few other structural changes you must know:

“Assessment Year” is abolished

The old Act used two terms: Financial Year (FY) and Assessment Year (AY). This confused many business owners.

The new Act removes Assessment Year entirely. You now use a single term: Tax Year (TY). TY equals the Financial Year. For the period starting 1 April 2026, you will refer to it as Tax Year 2026-27.

Transition rule is specific

If the earlier of credit or payment happens on or after 1 April 2026, the provisions of the Income Tax Act 2025 shall apply.

If the earlier event occurs on or before 31 March 2026, the Income Tax Act 1961 applies. This is needed when invoices straddle both periods, the same invoice can produce different results depending on when it was credited versus paid.

Form names have changed

Form 16 was the annual TDS certificate for salaried employees. It has now been changed to Form 130 under the new TDS rules.

Form 16A becomes Form 131. Using old form names for Tax Year 2026-27 transactions makes your certificates technically non-compliant.

TDS returns use numeric payment codes

TDS/TCS returns must now use numeric payment codes 1001–1092 instead of only legacy section references

CBDT circulars are now binding

The earlier draft of the 2025 Act had dropped a clause that made CBDT circulars binding on deductors. This has been corrected

From 1 April 2026, all CBDT circulars on TDS and TCS, including those on perquisites and virtual digital assets, carry mandatory compliance weight.

Overall, the structure has changed. The forms have new numbers. But the core obligation remains yours: deduct the correct amount, on time, using the right code.

Old Section 194J vs New Section 393 — What Deductors Must Know

While the 2025 Act is not a drastic tax overhaul, it fundamentally restructures how you will interact with the tax department. This is also applicable to TDS related provisions.

The earlier Section 194J of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 6(iii).D(a) and 6(iii).D(b)], effective from 1st April, 2026.

This restructuring classifies payments into technical services and professional services, while also separately covering payments made to directors.

The core provisions relating to deduction of tax at source continue to remain applicable.

The Code-Based System

The old method of referencing a section number (e.g., Section 194J) is now replaced by a code-based system.

Under the new law, you will use a specific payment code for every TDS transaction.

Here’s the direct mapping you need for TDS returns filed from April 2026:

Old Section	New Provision	TRACES Code	Rate
194J (Technical Services)	Section 393(1) – Sl. No. 6(iii).D(a)	1026	2%
194J (Professional Services)	Section 393(1) – Sl. No. 6(iii).D(b)	1027	10%
194J (Director Remuneration)	Section 393(1) – Sl. No. 6(iii).D(b)	1028	10%

The new structure has standardised the entire TDS process.

For every payment, from contractor payments (code 1023/1024) to interest on securities (code 1019), you now follow the same simple pattern: find the code, use the code.

New Forms, New Calendar:

The tax department has completely renamed and streamlined the forms for the new Act. The quarterly TDS return form has also changed.

Old Form (Until 31 March 2026)	New Form (From 1 April 2026)
Form 16 (annual TDS certificate for employees)	Form 130
Form 16A (Certificate for non-salary TDS)	Form 131
Form 24Q (Quarterly TDS return for salaries)	Form 138
Form 26Q (Quarterly TDS return for non-salaries)	Form 140
Form 26AS (Annual Tax Statement)	Form 168

This means, before filing your return, verify that your TDS software has been updated to use the new numeric payment codes.

Filing with old section references (like “194J”) will either fail validation or require a correction statement, both of which create unnecessary compliance risk.

Threshold Limit for TDS on Professional Fees

TDS is required to be deducted if the aggregate amount paid during the tax year exceeds ₹50,000. This rule applies to both professional and technical services.

The ₹50,000 limit applies per tax year, per payee. You only need to track the total amount you pay to a single professional or consultant in a year. Once the running total crosses ₹50,000, TDS is deductible on the entire amount, not just the excess.

For example, you hire a consultant and your total invoice stands at ₹60,000, which crosses the threshold. As per the law, you deduct TDS on ₹60,000, not ₹10,000.

Exception: In the case of payments made to directors (other than salary), there is no threshold. Tax is required to be deducted on the entire amount paid or credited to the director, regardless of the amount involved.

Payment Type	What It Covers	New Section Code	TDS Rate	Threshold
Fees for professional services	Legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, advertising, and other notified professional services	1027	10%	₹50,000 p.a.
Fees for technical services	IT services, managerial services, engineering, data processing, call centre operations	1026	2%	₹50,000 p.a.

Maintain a vendor-wise cumulative payment register throughout the year. Manual tracking breaks down when multiple invoices are raised across quarters.

Applicability when One Person Provides Multiple Services

The same person could render both professional and technical services to you. In that case, track each category separately.

For example, you pay a single consultant ₹40,000 for professional advice (10% rate) and ₹40,000 for technical support (2% rate) in the same year. Neither category crosses ₹50,000, so you deduct no TDS.

But if you had paid ₹60,000 for professional services and ₹30,000 for technical services, you would deduct 10% on the ₹60,000 portion and nothing on the ₹30,000 portion.

For Small Businesses

Individuals and HUFs are generally not required to deduct TDS unless their business turnover in the preceding year exceeds the prescribed limit or their professional receipts exceed the prescribed limit (1 crore) . This provides relief to smaller taxpayers.

For example, a freelance graphic designer with ₹30 lakh annual receipts would not have a TDS deduction obligation on payments to subcontractors, and a retail shop with turnover of ₹80 lakh would also remain outside the deductor category.

Rate Difference: Professional Services vs Technical Services

This is one of the most important things a deductor must do.

Applying the wrong rate means that you are either short-deducting (triggering interest and penalty) or over-deducting (creating cash flow problems for your vendor).

Tax is required to be deducted at the rate of 10% on director’s remuneration (other than salary) without any threshold limit.

On fees for professional services, technical services, and royalty, TDS is applicable only when the aggregate payment exceeds ₹50,000 in a financial year. The rates are 10% in general cases and 2% in specified cases such as technical services, call centre operations, and certain cinematographic royalty payments.

Nature of Payment	TDS Rate	TRACES Code
CA, lawyer, doctor, engineer, architect, consultant	10%	1027
Call centre operations	2%	1026
Fees for technical services (managerial/technical/consultancy not falling under professional)	2%	1026
Royalty (cinematographic films)	2%	1026
Royalty (others)	10%	1027
Director remuneration (non-salary)	10%	1028
PAN not furnished	20%	—

The line between “professional” and “technical” causes the most classification disputes.

The nature of the engagement and not just its label determines the rate.

Where the payment is mainly for specialised professional or technical expertise, the Section 393 professional or technical fee rules may apply. Where the payment is mainly for contract execution or work output, contractor payment provisions may need to be examined.

A practical example: ABC Ltd pays ₹2,50,000 for a software maintenance contract. If the service involves specialist IT expertise, it may be professional fees at 10%. If it’s a standard support SLA, it may be technical services at 2%.

Your Actionable Checklist

Classify the service first, not the person: A single person can provide both types of service. For example, an architect designs a building (Code 1027) and then provides IT support for your software (Code 1026). You must track and deduct TDS on each category separately.
Use the correct code when in doubt: If you are unsure whether a payment is for technical or professional services, deduct at the higher rate of 10% to protect your business from potential future demands.
Update your payment masters: Your accounting software must be updated with the new codes (1026 & 1027) from 1 April 2026.

The correct classification is now the key to your TDS compliance. It is your responsibility to correctly identify the nature of the service and apply the correct rate and code from the outset.

Who Must Deduct TDS on Professional Fees?

Not everyone paying professional fees is required to deduct TDS. The obligation depends on the category of the payer.

Category 1: Specified Persons (Standard Deductors)

This is applicable to companies, partnership firms, limited liability partnerships (LLPs), trusts, individuals or HUFs whose gross receipts or turnover exceeded ₹1 crore (for business) or ₹50 lakh (for profession) in the preceding tax year.

Essentially to entities liable to a tax audit. If they make a payment to a resident for professional or technical services, they must deduct TDS once the aggregate payment in a tax year crosses ₹50,000.

If you run a business and you are paying a professional for their services, you are required to deduct TDS at 10% once the aggregate payment in a tax year crosses ₹50,000

These deductors need a valid TAN. They must file quarterly returns in Form 140 and issue Form 131 to the professional.

Category 2: Individuals/HUFs Not liable to Audit

The exemptions usually applies to individuals and Hindu Undivided Families (HUFs) who are not liable for a tax audit under Section 63 in the immediately preceding financial year.

In simpler terms, you are not required to deduct TDS on professional fees if you are:

An individual or HUF AND
Your total sales, turnover, or gross receipts from business do not exceed ₹1 crore in the preceding tax year
OR your gross receipts from profession do not exceed ₹50 lakh in the preceding tax year

The moment either of those limits is exceeded, you become a “Specified Person” under the Act. From that point onward, you must deduct TDS on all eligible professional fee payments.

Who is exempt from deducting TDS?

Individuals and HUFs making payments for personal purposes (not business-related) e.g., paying a doctor for personal treatment
Payments to non-residents (a separate withholding regime applies under Section 393(2))

Key compliance step before first payment:

Collect PAN from every professional, consultant, and director before the first payment. Without PAN, TDS is 20%.

How to Pay TDS Online Using Challan 281

From 1 April 2026, you must use the new ITNS 281 Challan format on the Income Tax e-Filing portal for TDS payments.

The payment process itself is the same, but you will see updated dropdowns and codes (1026, 1027, 1028).

Always select the ‘Income Tax Act, 2025’ option on the portal and use the new challan forms to ensure your payment is correctly credited for the Tax Year 2026-27.

Here is the exact process:

Step 1

Go to www.incometax.gov.in and log in using your TAN (Tax Deduction Account Number).

Step 2

Under ‘Quick Links’ or the ‘e-File’ menu, select ‘e-Pay Tax’.

Step 3

You will be asked ‘Are you paying tax on your own behalf or on behalf of someone else?’ or ‘Select the Role’.

Make sure to select the deductor (TAN holder) option.

Step 4

Select the radio button “Income Tax Act 2025” for making payments for TY 2026-27 onwards.

Click “Pay TDS/TCS” and select deductee type (company or non-company)

Look for ‘Challan No./ITNS 281’ under the TDS/TCS section.

Step 5

Carefully enter all the required information in the form.

Enter the nature of payment using the correct payment code (1026 for technical services, 1027 for professional services)

Enter the TDS amount, interest (if applicable), and select the Tax Year (2026-27)

Step 6

After filling, click ‘Proceed’. You will be redirected to your bank’s net banking page to complete the payment.

Step 7

After successful payment, the portal will generate a Challan Identification Number (CIN) and a payment receipt.

Save this receipt; you’ll need the CIN for your TDS returns and records.

Critical Details You Must Fill Correctly in Challan 281

Required Information	What to Enter	Importance
TAN	Your valid deductor TAN	The payment is credited to the correct deductor account.
Assessment Year (AY) or Tax Year (TY)	The applicable tax year or assessment year shown on the portal	Aligns the payment with the correct compliance period.
Type of Payment	TDS payment other than salary, where applicable	Distinguishes TDS from other tax payments
Deductee Category	Company or Non-Company	Helps route the payment correctly.
Section/Code	1027 for Professional Fees (10%) or 1026 for Technical Services (2%).	Incorrect coding can create reconciliation issues.
Amount of TDS	The exact TDS amount you have deducted.	Prevents short-payment and interest exposure.

Due Dates for TDS Payment Under the New Act

The timeline for depositing TDS is strict. For professional fee payments, the rule is: Tax deducted in any month must be credited to the government by the 7th of the following month.

Example: TDS deducted in April 2026 must be deposited by 7 May 2026.

Special Case: TDS deducted in March (the last month of the tax year) can be deposited by 30 April.

Late payment will incur simple interest at 1.5% per month on the amount of tax that was not paid on time.

Issuing Form 16A to the Professional (Now Form 131)

Under the new rules, Form 16A is now Form 131. The format and provision remain mostly the same, while only the form number and reference have changed.

Form 131 (old Form 16A) is a TDS certificate for non-salary income.

It gives the professional, your CA, lawyer, consultant, or any other service provider proof of the TDS deducted on their fees. They use it to claim the TDS credit when filing their income tax return.

You download Form 131 from TRACES after filing your quarterly return (Form 140). It is not self-generated.

Here’s what you need to do:

Deduct TDS from the professional’s payment.
Deposit the TDS with the government using Challan 281.
File your quarterly TDS return in Form 140.
Log in to the TRACES portal and download the Form 131 certificate.
Give this downloaded certificate to the professional.

Issue deadlines for Form 131:

Quarter	Period	Issue by
Q1	April – June	15th August
Q2	July – September	15th November
Q3	October – December	15th February
Q4	January – March	15th June

Ensure that TDS deposited by you reflects correctly in the professional’s Form 168 (previously Form 26AS). Reconcile quarterly — mismatches create disputes and ITR filing problems for the professional.

The Information You Will See on Form 131

Form 131 is a standardised document containing the following key details:

Deductor (Your) Information: Your name, TAN, and address.
Deductee (Professional’s) Information: Their name, PAN, and address.
Payment Details: The total amount paid, the rate of TDS applied, and the actual TDS amount deducted.
Deposit Details: The Challan Identification Number (CIN) and the date the tax was deposited with the government.

The professional can also verify the TDS credit shown on Form 131 by checking their Form 168 (the new name for Form 26AS), the Annual Tax Statement.

Penalties for Not Deducting or Late Deduction

The consequences of TDS non-compliance range from monetary fines to stringent penalties.

Here are the financial and legal risks you face:

Default	Consequence
TDS not deducted	30% expense disallowance + 1% interest/month + penalty equal to TDS
TDS deducted but not deposited	1.5% interest/month + prosecution risk
TDS return filed late	₹200/day late filing fee
PAN not collected	TDS at 20% instead of 10%/ 2%

1. Expense disallowance

Beyond fines, the most damaging penalty is the denial of your business expense.

Under Section 35(b) of the new Act, 30% of the payment made to a professional is disallowed as a business expense if you fail to deduct TDS or fail to deposit it by the due date

In simple terms: if you paid ₹5 lakh in professional fees and didn’t deduct TDS, ₹1.5 lakh of that is added back to your taxable income.

2. Interest on late deduction or late deposit

Non/Late Deduction: Interest at 1% per month (or part thereof) is levied on the TDS amount from the due date to the actual deduction date.

Late Payment: Interest at 1.5% per month (or part thereof) is charged on the TDS amount from the deduction date to the payment date if the deducted TDS is not deposited with the government on time.

The interest runs even if the delay was due to a cash flow problem or an oversight. Every part of a month counts as a full month.

3. Monetary Penalty

If you fail to file the return or file incorrect information (like a wrong PAN or wrong payment code), the Assessing Officer can levy a penalty under Section 271H.

Minimum Penalty: ₹10,000
Maximum Penalty: ₹1,00,000

The department usually issues a notice before levying this penalty, but it is routinely imposed in cases of habitual default or gross negligence.

4. Late filing fees

Failing to file your quarterly TDS return (Form 140) on time triggers a mandatory fee under Section 427 of the new Act.

You are liable to pay ₹200 for every day the delay continues. This fee is capped at the amount of TDS for that quarter, but the daily addition can add up for large deductors.

5. Prosecution

For serious or deliberate defaults, the law allows for criminal prosecution under Section 276B. This is the most severe penalty.

It is punishable with rigorous imprisonment for a term which may extend to seven years.

How to Fix a TDS Default

If you realize you have missed deducting TDS or paid it late, immediate action is required:

Deduct the tax now from any future payment to the same professional. Do not delay.
Deposit the tax using Challan 281 immediately.
Pay the applicable interest under Section 201(1A) along with the principal TDS amount when you deposit it.
File a revised TDS statement (correction statement) on the TRACES portal to update the department’s records.
If the TDS was not deducted at all and the professional has already filed their return, you may need to request them to file a revised return or follow the procedures for “TDS not deducted” as per specific rules.

The penalties are harsh, but they are avoidable with timely compliance. If you are facing a demand notice or need to file a correction statement, contact a tax professional immediately. Understanding the difference between proactive planning and reactive compliance can save your business significantly — read our guide on Tax Planning vs Tax Compliance to see how a structured approach protects you from TDS defaults and other costly oversights.

PKC Tax Compliance Services

TDS on professional fees may look straightforward on paper, but the classification between professional and technical services, tracking cumulative payments across vendors, updating systems to new payment codes, and filing on time across quarters can get complex.

PKC Management Consulting helps Indian businesses master these complexities. We don’t just fill out forms; we audit your vendor master, reconcile your books, and ensure your TDS filings are accurate and on time. Explore our comprehensive Tax Advisory Services to see how our team of CAs helps businesses across India navigate TDS classification, filing, and compliance under the new Income Tax Act 2025.

Our tax compliance work spans across:

Expert Advisory: Our team of CAs holds deep expertise in direct tax laws, including the nuances of the Income Tax Act, 2025. We help you correctly classify payments like distinguishing between professional (Code 1027) and technical (Code 1026) services to prevent costly misclassification errors.
End-to-End TDS Management: We manage the entire TDS lifecycle, from deduction calculation and timely deposit using Challan 281 to the accurate filing of quarterly returns (Form 140) and the generation of Form 131 certificates.
Smart Reconciliation & Reporting: Our proprietary AI-powered tools can identify mismatches in your financial data before the tax department does. We also help you forecast your tax liability and manage cash flow for TDS obligations.
Full-Spectrum Compliance: Beyond TDS, we handle all related compliances, including income tax return filing, GST filings, and internal audits, providing a unified solution for your business

PKC’s teams have hands-on experience across industries including IT/ITES, manufacturing, healthcare, BFSI, real estate, and retail.

Whether you are a startup, a mid-sized business, or an established enterprise, PKC provides the strategic support you need to focus on growth rather than grappling with tax codes.

Beyond compliance, we provide actionable insights to optimize your tax position and improve your financial health.

FAQs

Q1: What is the TDS rate on professional fees in 2026?

10% for professional services including CA, lawyer, doctor, engineer, architect, and other notified professionals , under Section 393(1) [TRACES Code 1027]. Technical services like call centres attract 2% (Code 1026). If the payee does not furnish a PAN, TDS is deducted at 20%.

Q2: What is the threshold limit for TDS on professional fees?

₹50,000 per tax year, per payee. Once cumulative payments to a single professional cross ₹50,000 in Tax Year 2026-27, TDS applies on the full amount. No threshold applies to director remuneration.

Q3: Is TDS on CA and legal fees 2% or 10%?

10%. Fees paid to chartered accountants, lawyers, and other notified professionals fall under “professional services,” which carry a 10% rate under Section 393(1) [Code 1027]. The 2% rate is specifically for technical services, call centres, and certain film royalties. It does not apply to CA or legal fees.

Q4: What is the new section number for TDS after April 2026?

Section 393 of the Income Tax Act 2025 consolidates all non-salary TDS. What was Section 194J is now Section 393(1) Sl. No. 6(iii).D(a) for technical services and 6(iii).D(b) for professional services. Section 194M (for non-audit individuals/HUFs) maps to Section 393(1) [Sl. No. 6(ii)].

Q5: How do I pay TDS on professional fees online?

Log in to incometax.gov.in → e-Pay Tax → New Payment → select “Income Tax Act 2025” for TY 2026-27 → Pay TDS/TCS → select deductee type and payment code (1026 or 1027) → enter amount and tax year → pay via net banking or UPI → download challan receipt. Deposit by the 7th of the following month; March deductions are due by 30th April.

Q6: What is the penalty for not deducting TDS?

Three consequences apply simultaneously: 30% of the payment is disallowed as a business expense under Section 35(b) of the new Act; interest at 1% per month accrues from the date it should have been deducted; and a penalty equal to the full TDS amount can be levied under Section 271C. If you are unsure whether your TDS deductions are correct under the new Income Tax Act 2025, book a FREE 30-minute consultation with PKC’s tax experts today — and get a clear, actionable compliance plan before the next filing deadline.

Q7: Do individuals and HUFs need to deduct TDS on CA fees?

Yes, if subject to tax audit i.e., if your business turnover exceeded ₹1 crore or professional receipts exceeded ₹50 lakh in the preceding year. Deduct at 10% once aggregate CA fees exceed ₹50,000. If not subject to audit, a different rule applies: deduct at 2% if total professional fees in the year exceed ₹50 lakh, using Form 141 (no TAN required).