What is TDS Code 1027?

TDS Code 1027 refers to tax deduction on payments made for professional services under the new Income Tax Act.

It is governed by:

• Section 393(1)
• Table Sl. No. 6(iii).D(b)

This code is used to classify professional service payments for TDS compliance.

For reference, payments for professional services were earlier governed by Section 194J of the Income Tax Act, 1961. Under the new Income Tax Act, such payments are classified using TDS codes, with Code 1027 applicable for professional services.

Nature of Payment Covered Under TDS Code 1027

This code applies to payments for professional services such as:

• legal services
• consultancy services
• accounting and audit services
• architectural services
• advisory and other professional services

These services typically involve specialised human expertise and professional qualification.

TDS Rate for Code 1027

• Standard Rate: 10%
• Rate if PAN not available: 20%

TDS must be deducted at the time of:

• credit of the amount, or
• payment, whichever is earlier

Threshold Limit for TDS Code 1027

TDS is generally applicable when total payments exceed:

₹50,000 in a financial year

If payments do not cross this threshold, TDS is not required to be deducted.

Who is Required to Deduct TDS?

TDS under Code 1027 must be deducted by:

• companies
• firms
• businesses
• specified persons making payments to resident professionals

Quick Comparison: TDS Codes 1026 vs 1027 vs 1028

Difference Between TDS Code 1026 and 1027

TDS Code 1026 and 1027 are often confused because both relate to service-based payments, but they apply to different types of services.

TDS Code 1026 applies to technical services, royalty, and call centre operations, where the service is more system-driven or technical in nature.

On the other hand, TDS Code 1027 applies to professional services, where the payment is made for specialised human expertise such as legal, consultancy, or advisory services.

In simple terms:

• 1026 → technical / system-based services (2%)
• 1027 → professional / expertise-based services (10%)

Treatment of Payments to Directors

While TDS Code 1027 applies to professional services, payments made to directors are not covered under this code.

Under the new Income Tax Act:

• Director remuneration, fees, or commission (other than salary) is covered under
  Section 393(1) – Table Sl. No. 6(iii).D(b)
  and mapped to TDS Code 1028

This means:

• payments to professionals → Code 1027
• payments to directors → Code 1028

Difference Between TDS Code 1027 and 1028

TDS Code 1027 and 1028 differ based on who the payment is made to.

TDS Code 1027 applies to independent professionals, such as consultants, lawyers, or accountants.

TDS Code 1028 applies specifically to company directors, including:

• director fees
• commission
• remuneration (other than salary)

Even if a director provides professional expertise, the payment is classified under Code 1028, not 1027.

Practical Example

If a business pays ₹1,00,000 as professional fees:

• TDS @ 10% = ₹10,000
• Net payment = ₹90,000

If PAN is not provided:

• TDS @ 20% = ₹20,000

Common Mistakes to Avoid

• confusing Code 1026 (technical services) with Code 1027 (professional services)
• including director payments under 1027 instead of 1028
• ignoring threshold limit of ₹50,000
• applying incorrect TDS rate
• incorrect reporting in TDS returns

Where is TDS Code 1027 Used?

This code is used in:

• TDS return filing (Form 140)
• challan selection while depositing TDS
• accounting and ERP systems
• compliance and reconciliation processes

How to Identify If 1027 Applies to Your Payment

TDS Code 1027 is applicable if:

• the payment is for a professional service
• the payee is a resident
• the total exceeds ₹50,000

Frequently Asked Questions

What does TDS Code 1027 mean?
It refers to TDS on professional service payments under the new Income Tax Act.

What is the TDS rate for 1027?
10% (20% if PAN is not available).

What is the threshold limit?
₹50,000 per financial year.

What is the difference between 1026 and 1027?
1026 applies to technical services and royalty, while 1027 applies to professional services.

Are director payments covered under 1027?
No. Director payments are covered under TDS Code 1028.

What happens if the wrong TDS code is used?
It may lead to incorrect filing, mismatches, or notices.

Final Thoughts

TDS Code 1027 is a key part of professional payment compliance under the new Income Tax Act.

Understanding the distinction between:

• 1026 (technical services)
• 1027 (professional services)
• 1028 (director payments)

helps ensure accurate deduction, reporting, and compliance.

Need Help with TDS Compliance?

If you need assistance with:

• selecting the correct TDS code
• deduction and calculation
• return filing or corrections

our team can assist you with end-to-end compliance.