What is TDS Code 1026?

TDS Code 1026 corresponds to payments covered under:

Section 194J(a) of the earlier Income Tax Act.

Under the new Income Tax Act code structure, TDS Code 1026 generally applies to:

• Fees For Technical Services (other than professional services)
• Royalty relating to cinematographic films
• Certain payments to call centres

👉 In simple terms, 1026 mainly applies where businesses are paying for technical expertise, IT support, technical infrastructure, or operational technical assistance.

TDS Rate for Code 1026

👉 The lower 2% rate is one of the biggest distinctions between technical services under 1026 and professional services under 1027.

Threshold Limit for TDS Code 1026

TDS under Code 1026 generally becomes applicable when payments exceed:

👉 TDS becomes applicable once aggregate payments exceed the threshold during the financial year.

What Are Fees for Technical Services?

Technical services generally involve:

• IT Support Services
• Software Maintenance
• Technical Consultancy
• System Management Services
• Engineering Technical Assistance
• Infrastructure Support Services

👉 The key factor is that the payment relates to technical execution or technical expertise, rather than professional advisory services.

Common Examples of TDS Code 1026

TDS Code 1026 commonly applies in cases such as:

• Payments to IT support vendors
• Server maintenance contracts
• Technical system implementation services
• Call centre outsourcing services
• Technical engineering support
• Software infrastructure management

These payments are generally treated as technical services under the earlier Section 194J(a) structure.

TDS Code 1026 vs 1027 (Very Important)

This is one of the biggest areas of confusion for businesses.

👉 Businesses frequently deduct 10% TDS under 1027 even where the payment is actually technical in nature and covered under 1026.

How to Differentiate Between 1026 and 1027

A simple way to understand the difference:

Use 1026 when:

The service primarily involves:

• Technical Execution
• System Support
• Technology Infrastructure
• Operational Technical Assistance

Use 1027 when:

The service primarily involves:

• Professional Judgment
• Advisory Expertise
• Consultancy
• Specialized professions such as legal, CA, doctors, architects etc.

👉 Correct classification is important because the applicable TDS rate differs significantly.

Royalty Payments Covered Under 1026

TDS Code 1026 also applies to:

• Royalty related to sale, distribution, or exhibition of cinematographic films

This category specifically falls under the lower 2% TDS structure.

Call Centre Payments Under 1026

Certain payments made to businesses engaged exclusively in:

• Call centre operations

may also fall under TDS Code 1026.

👉 This was specifically introduced to provide a lower TDS rate structure for such services.

Practical Examples of TDS Code 1026

Example 1 – IT Support Services

A company pays:

• ₹2,00,000 to an IT vendor for server maintenance

Applicable TDS:

• TDS Code: 1026
• TDS Rate: 2%
• TDS Amount: ₹4,000

Net payment after TDS:

• ₹1,96,000

Example 2 – Technical System Implementation

A manufacturing company pays:

• ₹80,000 for technical system implementation services

Since the payment exceeds ₹50,000:

• TDS under Code 1026 becomes applicable.

Common Mistakes Businesses Make

Businesses often make mistakes such as:

• Using 1027 instead of 1026
• Deducting 10% instead of 2%
• Treating technical services as professional services
• Ignoring aggregate yearly threshold calculations

👉 Incorrect deduction may result in vendor disputes, notices, or reconciliation issues.

Who Is Required to Deduct TDS Under 1026?

Generally, TDS under Code 1026 is deducted by:

• Businesses
• Companies
• Firms
• Other specified deductors making technical service payments

👉 Applicability depends on turnover limits and TDS provisions under the Income Tax Act.

TDS Return Reporting for Code 1026

TDS deducted under Code 1026 must be reported in the applicable TDS return under the new code structure.

Businesses should ensure:

• Correct code selection
• Proper PAN reporting
• Accurate nature-of-payment classification

👉 Incorrect reporting may create mismatch issues during TDS processing.

Frequently Asked Questions

What is TDS Code 1026?

TDS Code 1026 generally applies to fees for technical services, certain royalty payments, and specified call centre payments.

What is the TDS rate for 1026?

The standard TDS rate is 2%.

What is the threshold limit for TDS Code 1026?

TDS generally applies once payments exceed ₹50,000 during the financial year.

What is the difference between 1026 and 1027?

1026 applies to technical services at 2%, whereas 1027 applies to professional services at 10%.

Does 1026 apply to IT services?

Yes, many IT support and technical infrastructure services may fall under 1026.

Final Thoughts

TDS Code 1026 is an important category under the new Income Tax Act structure, especially for businesses making payments for:

• Technical Services
• IT Support
• System Maintenance
• Call Centre Services
• Certain Royalty Payments

👉 The most important point businesses should remember is:

• 1026 generally carries a 2% TDS rate
• 1027 generally carries a 10% TDS rate

Correct classification is therefore critical for proper TDS compliance.

Need Help With TDS Compliance?

If you need assistance with:

• TDS applicability
• Correct TDS code selection
• TDS return filing
• Vendor payment compliance

our team can help simplify your TDS compliance process.