FreeComplianceTDS on salary vs professional fees: employee or consultant?
Startups often pay people in three ways: as employees, as professionals or consultants, and as contractors. Each has different TDS rules. Classifying a payment wrongly leads to short deduction, interest and disallowed expenses.
The three categories
| Payment | Section (2025 Act / old) | TDS rate | Threshold |
|---|---|---|---|
| Salary to employees | 392 / 192 | Slab rates on estimated annual income | Basic exemption limit |
| Fees for professional services | 393(1) / 194J | 10% | ₹50,000 a year per payee |
| Fees for technical services | 393(1) / 194J | 2% | ₹50,000 a year per payee |
| Payments to contractors | 393(1) / 194C | 1% (individuals/HUF), 2% (others) | ₹30,000 per payment or ₹1,00,000 a year |
| Director's remuneration not as employee (sitting fees, commission) | 393(1) / 194J | 10% | No threshold |
Employee or consultant?
The label in a contract is not decisive. Tax authorities look at control over how work is done, fixed hours, exclusivity, benefits, and whether the person carries business risk. A full-time "consultant" working only for you under your direction may be treated as an employee.
Frequently asked questions
This guide is general information, not legal advice. Government fees and procedures change; confirm current figures before you file.
- TDS due dates for companies: deposit, returns and certificates
When companies must deposit TDS, file quarterly TDS returns, and issue TDS certificates (Form 130 and 131, formerly 16 and 16A), with late fees and interest.
- TDS on rent paid by a company
When a company must deduct TDS on office rent, rates for land and building vs machinery, thresholds, and GST interplay.
- TDS return forms: 138, 140 and 144 (formerly 24Q, 26Q and 27Q)
The new TDS return forms from 1 April 2026 (138, 140, 144, 143), how they map to 24Q, 26Q, 27Q and 27EQ, and how to file them.