Section 194J vs Section 393(1) — TDS on Professional Fees, Technical Services & Director Remuneration: Complete Guide for Tax Year 2026-27

Section 194J of the Income Tax Act, 1961 was one of the most frequently applied and frequently litigated TDS provisions in India. Covering professional fees, technical services, royalty, non-compete fees, and director remuneration under a single section, it was a daily compliance tool for every business that engaged consultants, advisors, lawyers, doctors, or directors.

From 1st April 2026, Section 194J stands repealed. The Income Tax Act, 2025 replaces it with three distinct entries under Section 393(1) — each with its own payment code. This split is not cosmetic. Using the wrong code for the wrong nature of service is a compliance error that makes your TDS return defective.

This blog provides a complete legal comparison — old provision, new equivalents, what changed, what stayed the same, and the critical action your compliance team must take before the next quarterly return.

Part 1 — The Old Law: Section 194J, Income Tax Act 1961

What Section 194J Covered

Section 194J required any person (other than an individual or HUF not liable to tax audit in the preceding year) to deduct TDS when making the following payments to a resident:

The Key Problem Under the Old Act

Section 194J bundled multiple payment types — professional fees, technical fees, royalty, non-compete, and director remuneration — under a single section with two different rates (2% and 10%). This regularly caused incorrect deductions where deductors applied 2% (technical) rate to payments that were genuinely 10% professional services, or vice versa. The new Act addresses this by creating three separate codes, forcing correct classification at the challan level itself.

Part 2 — The New Law: Section 393(1), Income Tax Act 2025

Under the Income Tax Act, 2025, all payments previously covered by Section 194J are now distributed across three separate entries under Section 393(1) [Table Sl. No. 6(iii)], each with its own payment code:

Part 3 — Complete Comparison Table

Part 4 — What Changed: Detailed Analysis

Change 1: Three Codes Replace One Section — Critical Classification Requirement

This is the most significant operational change from 194J to 393(1). Under the old Act, a deductor quoted “194J” for every payment — professional or technical — and the rate was determined internally. Under the new Act, the payment code itself determines and declares the nature and rate of payment.

Using Code 1026 (technical, 2%) for a payment that is genuinely professional services (should be Code 1027 @ 10%) is a compliance error — the TDS return is defective, the deduction is short, and the deductee receives wrong Form 131 data. Conversely, using Code 1027 for technical services means excess TDS deduction and disputes with the payee.

Director remuneration now has its own dedicated Code 1028 with zero threshold. This removes the previous ambiguity where companies sometimes missed TDS on small director fee payments by applying the ₹30,000 threshold incorrectly to director remuneration.

Change 2: Threshold Formally Set at ₹50,000 Under New Act

The threshold for TDS deduction under Section 194J was ₹30,000 per year per category. This was increased to ₹50,000 with effect from 1st April 2025 (Tax Year 2025-26 itself, under the old Act — vide Finance Act 2025). The Income Tax Act, 2025 carries forward this ₹50,000 threshold as the base threshold under Codes 1026 and 1027.

Important: The ₹50,000 threshold applies separately to each category — technical fees and professional fees are counted independently. A payment of ₹45,000 for technical services and ₹45,000 for professional services in the same year: no TDS on either (each is below ₹50,000), even though the total is ₹90,000.

Director remuneration under Code 1028 continues to have zero threshold — any payment, however small, requires TDS deduction at 10%.

Change 3: TDS Certificate Form 16A Replaced by Form 131

Every TDS certificate issued for professional fees, technical fees, royalty, or director remuneration paid on or after 1st April 2026 must use Form 131 instead of Form 16A. The payment code (1026, 1027, or 1028) must be correctly mentioned on the certificate so the payee can reconcile their income with the right TDS credit on the income tax portal.

Change 4: CBDT Circulars on Classification Now Binding

CBDT has issued several circulars over the years clarifying whether specific payments are professional or technical in nature — for example, circulars on software services, recruitment agency payments, and sportsperson fees. Under the old Act, these were advisory. Under Section 400(2) of the new Act, they are legally binding. Misclassifying a payment contrary to a CBDT circular is now a directly actionable non-compliance.

Part 5 — Common Classification Scenarios

The most frequent practical question will be: which code for which payment? Here are the most common scenarios:

Part 6 — Action Checklist

1. Update all TDS software/ERP: retire “194J” — use Code 1026 (technical/2%), Code 1027 (professional/10%), or Code 1028 (director/10%) for all payments from 1 Apr 2026.
2. Map every recurring vendor/consultant payment to the correct new code before the next payment cycle.
3. Issue Form 131 (not Form 16A) for all TDS certificates for payments from 1 Apr 2026.
4. File Form 140 (not Form 26Q) for quarterly TDS returns from Tax Year 2026-27.
5. Director remuneration: deduct TDS at 10% (Code 1028) on every payment — no threshold.
6. Update threshold tracking to ₹50,000 per category for Codes 1026 and 1027.
7. Review CBDT circulars on payment classification — now legally binding under Section 400(2).

Key Takeaways

• Section 194J is replaced by Section 393(1) [Table Sl. No. 6(iii)] with three codes — 1026, 1027, and 1028 — effective 1st April 2026.
• Code 1026 @ 2%: Technical services, cinematographic royalty, call centres. Code 1027 @ 10%: Professional services, royalty, non-compete. Code 1028 @ 10%: Director remuneration (zero threshold).
• Using the wrong code is a compliance error — TDS return becomes defective and TDS credit data to payee is incorrect.
• Threshold increased to ₹50,000 per category (from ₹30,000) — applies to Codes 1026 and 1027 only. Code 1028 (director) has zero threshold.
• TDS certificate: Form 131 replaces Form 16A. Quarterly return: Form 140 replaces Form 26Q.
• CBDT circulars on professional vs technical classification are now legally binding under Section 400(2).

Frequently Asked Questions