Income Tax Act 2025: TDS on Professional Fees and New Rates from April 2026

On April 1, 2026, the Income Tax Act, 1961, was replaced by the Income Tax Act, 2025. Alongside this legislative changeover, the TDS framework underwent significant restructuring. Professional fees paid to lawyers, chartered accountants, doctors, and architects now face a uniform 10 percent TDS rate, a substantial reduction from historical rates. Technical and managerial services face a 2 percent rate. These changes require immediate vendor master updates in every company's ERP system to ensure correct withholding from April 1 onward.

The Shift from the 1961 Act to the 2025 Act

The Income Tax Act 2025 represents a complete legislative rewrite, not merely amendments. The government consolidated over six decades of amendments, judicial interpretations, and regulatory clarifications into a cleaner, more coherent statutory framework. Section numbering changed entirely. The old section 194J on TDS on professional services is subsumed into new sections with different numbering logic.

The New 10 Percent Rate on Professional Fees

Under the Act 1961, TDS on professional services to advocates, architects, and consultants was typically 10 percent, but older amendments created variations. The Act 2025 standardizes this at 10 percent for all professional services, including legal advice, accounting services, medical practice, and architectural design. This clarity simplifies compliance for payers and simplifies withholding calculations.

The 2 Percent Rate on Technical Services

A distinct category of technical and managerial services now attracts a 2 percent TDS rate, significantly lower than the 10 percent professional rate. This category includes IT services, engineering consultancy, management advice, and training services. The distinction between professional and technical services requires careful analysis of the nature of the service provided.

Vendor Master and ERP System Updates

Every organization maintaining vendor records in an ERP must update each vendor's TDS section code before making any payment after April 1, 2026. Failure to update will result in incorrect withholding. Under-withholding creates tax liability for the company, even though the payer bore the cost. Configure your ERP to automatically deduct at the correct new rate based on vendor classification.

Key Takeaways

Audit your vendor master immediately and identify all professional service vendors. Update TDS section codes to reflect the new Act 2025 provisions and rates. Ensure your ERP system is configured to deduct at the correct new rate. Review prior-year TDS filings for consistency with the old Act and update current filings for the new rates. Brief your finance and legal teams on the rate changes to avoid client disputes over unexpected withholding amounts.