Paying Professional or Technical Fees in FY 2026-27? Here’s What the New TDS Rules Really Mean for You
Section 393(1) brings new rates, higher thresholds and sharper compliance for anyone deducting or receiving TDS on professional/technical services
The New Landscape: Section 393(1) Replaces Section 194J
From FY 2026-27, India's new income-tax code overhauls TDS on payments for professional and technical services. The legacy Section 194J gives way to Section 393(1), with several changes that affect companies, business owners, freelancers and even individual taxpayers.
Section 393(1) applies to any payment for services of a professional (like lawyers, doctors or CAs) or technical nature (such as software support, data processing, or call centres). Understanding if, when, and how much TDS to deduct is crucial, as non-compliance can attract steep penalties and even expense disallowance.
What Counts as Professional vs Technical Services?
- Professional services: Legal, medical, accounting, architectural, technical consulting, management consulting, and similar professions.
- Technical services: Database management, technical support, software or IT helpdesk, engineering consultation, call centre support and similar services.
Director remuneration, a frequent gray area, is given special treatment—explained below.
Key TDS Rates and Thresholds for FY 2026-27
| Category | TDS Rate | Annual Threshold (per payee, per category) | PAN Not Provided | Special Cases |
|---|---|---|---|---|
| Technical Services | 2% | ₹50,000 | 20% | |
| Professional Services | 10% | ₹50,000 | 20% | |
| Payments to Directors | 10% | No threshold—TDS from first rupee | 20% | Non-salary remuneration |
- Threshold applies separately for each payee and each category (e.g., if one vendor provides both accounting and IT, each has a separate ₹50,000 exemption).
- Threshold does not apply for director remittances: TDS must be deducted from the first rupee paid, regardless of amount.
Who Must Deduct TDS Under Section 393(1)?
- Corporate entities, government authorities, municipal bodies, LLPs and partnership firms: Must deduct TDS on all eligible payments, irrespective of their turnover.
- Individuals and HUFs: Required to deduct TDS only if business turnover in the preceding year exceeds ₹1 crore, or professional receipts exceed ₹50 lakh.
- No TDS for purely personal payments (e.g., personal medical or legal consultant, even if otherwise liable to deduct for business services).
Timing and Mechanics: When and How to Deduct
- When: TDS must be deducted at the earlier of: (a) payment to the service provider; or (b) booking/accrual of the expense in your accounts (e.g., when an invoice is received).
- Deposit Deadlines:
- TDS deducted must be deposited by the 7th of the following month.
- If deduction happens in March, deposit allowed until April 30th.
- Returns:
- TDS returns must be filed quarterly, by July 31st, October 31st, January 31st, and May 31st for the corresponding quarters.
- PAN: If the payee fails to provide PAN, a punitive TDS rate of 20% applies, regardless of threshold or normal category rate.
- Payment Codes: Code 1026 (technical), Code 1027 (professional) for deposit challans.
Penalties and Expense Disallowance: The Risks of Non-Compliance
| Lapse | Consequence |
|---|---|
| Late deduction | 1% per month (or part) interest |
| Late deposit | 1.5% per month (or part) interest |
| TDS not deducted/deposited before return | 30% of expense disallowed as deduction |
Example: You pay a consultant ₹60,000 (with PAN) in June 2026. TDS obligation arises on the full ₹60,000 – TDS of ₹6,000 (10%) must be deducted by June-end and deposited by July 7th. Failing to deduct or deposit TDS on time triggers both interest liability and a 30% disallowance of the consultancy expense if not rectified before your income-tax return is filed.
Practical Scenarios: Who is Impacted and How
- SMEs and Startups: The higher threshold (₹50,000) offers room for smaller payments to freelancers or professionals without triggering TDS every time. But once the threshold is crossed for any one service provider in a category, TDS on the full amount applies.
- Professional Firms: CAs, lawyers or architects must keep PAN details and clarify category of services in bills to avoid TDS disputes and ensure clients use correct TDS code.
- Directors (Non-Executive, Independent): All payable fees/remunerations, even honoraria, trigger TDS at 10% with no minimum threshold.
Documentation and Evidence
To defend your compliance in a tax audit:
- Always collect the payee’s PAN
- Maintain signed invoices categorising nature of service
- Retain TDS deposit challans and TDS returns
What Has Changed Compared to Earlier Law?
- Threshold increased from ₹30,000 (old law) to ₹50,000 per payee per category.
- Director payments now clearly carved out for TDS on every rupee, closing old loopholes.
- Differentiated rates (2% for technical, 10% for professional) continue, but strict enforcement of penalty rates and expense disallowance brings sharper teeth.
What You Should Do Now
- Update vendor onboarding checklists: capture service type, PAN, and threshold status.
- Automate threshold tracking in your accounting/payables system.
- Mark director payments for immediate TDS, regardless of amount.
- Educate your accounts team about new sections, deadlines, codes, and document trails.
Missing timely TDS will not only cost you interest—it could shrink your tax-deductible expenses by 30%.
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Key Deadlines for FY 2026-27
| Requirement | Due Date |
|---|---|
| TDS Deposit Monthly | 7th of following month |
| TDS Deposit (March deductions) | 30th April |
| Quarterly TDS Return (Q1) | 31st July 2026 |
| Quarterly TDS Return (Q2) | 31st October 2026 |
| Quarterly TDS Return (Q3) | 31st January 2027 |
| Quarterly TDS Return (Q4) | 31st May 2027 |
Frequently asked questions
What is the new annual TDS threshold for professional or technical services from FY 2026-27?
The annual TDS threshold increases to ₹50,000 per payee per category of service. TDS must be deducted on the full amount once this limit is exceeded in a financial year.
How is TDS on director remuneration handled under the new rules?
All non-salary remuneration to directors attracts TDS at 10% from the first rupee. The ₹50,000 threshold does not apply to these payments.
What happens if a professional service provider does not furnish a PAN?
If the payee does not provide a valid PAN, TDS must be deducted at 20%—even if this is higher than the usual rate.
When must TDS deducted on professional fees be deposited?
TDS must be deposited by the 7th of the month following deduction, except for deductions in March, which may be deposited up to April 30th.
What is the penalty for failing to deduct or deposit TDS on time?
Delayed deduction incurs interest at 1% per month (or part), delayed deposit at 1.5% per month. In addition, 30% of the expense is disallowed as a tax deduction if not rectified before ITR filing.
Are individuals or HUFs always required to deduct TDS on professional payments?
No. Individuals/HUFs are required to deduct TDS only if their business turnover exceeds ₹1 crore or professional receipts exceed ₹50 lakh in the preceding financial year.