TDS Payment Code 1027 (Section 393(1) Sl. 6(iii).D(b)): Professional and Technical Fees Reconciliation Guide

Quick reference: Payment Code 1027 at a glance

What payment code 1027 covers

Payment code 1027 is the 10% professional-fees bucket. Under Section 393(1) Sl. 6(iii).D(b), it absorbs payments to chartered accountants, advocates and lawyers, doctors, architects, engineers, interior designers, management consultants, royalty recipients (publishers paying authors, music labels paying composers), and non-compete recipients (payments to former founders or executives under non-compete agreements).

Note that under the legacy 194J regime, professional fees (10%) and technical services (2%) shared a single section number. Under the 2025 Act, they are split into two distinct codes that share a single Sl. No. — code 1027 for professional / royalty / non-compete at 10% under §393(1) Sl. 6(iii).D(b), and code 1026 for technical services at 2% under §393(1) Sl. 6(iii).D(a). The split is a tagging change, not a substantive change in rates or scope.

The three sub-types within code 1027 all sit at 10%. The professional fees bucket follows the listed and notified professions framework under Section 44AA of the legacy Act. Royalties from patents, copyrights, trademarks, designs, and know-how also sit at 10%. Non-compete payments are at 10% as well.

A worked example for FY 2026-27: A SaaS company pays its statutory auditor (chartered accountancy firm) ₹4,50,000 for the FY 2025-26 audit, settled in May 2026. TDS at 10% is ₹45,000 deducted at the time of payment; challan goes through with payment code 1027 under Section 393. The same SaaS company pays a third-party hosting consultant ₹1,20,000 for managed Kubernetes services in the same month — that’s technical services at 2% = ₹2,400, but it goes under the sibling code 1026 (§393(1) Sl. 6(iii).D(a)), not code 1027.

Rate, threshold, and applicability rules

The rate selection drives most of the reconciliation work. Under the 2025 Act, the 10% versus 2% boundary is now a 1027 versus 1026 code choice rather than a sub-rate inside one section. That makes the deduction easier to audit on Form 168 (two distinct lines per deductor instead of one line with a sub-type), but it makes the invoice-tagging discipline more important — once the wrong code is used on the challan, fixing it requires a challan correction filing.

Royalty has its own complications. Software licence fees from a resident software publisher may be technical services (code 1026, 2%) or royalty (code 1027, 10%) depending on whether the licence conveys a right to use the underlying intellectual property or merely a copy of the software. The Supreme Court’s Engineering Analysis ruling clarified the distinction for cross-border payments; the same logic carries forward to the code 1027 / code 1026 split for resident licences.

The dual-code threshold counter — ₹30,000 for code 1027 runs separately from ₹30,000 for code 1026, both per-deductee per-FY — is a frequent ERP misconfiguration. Some legacy systems aggregate both codes into a single counter (carrying over the old single-194J behaviour), which means a vendor receiving ₹25,000 in professional fees (code 1027) and ₹10,000 in technical fees (code 1026) crosses the combined ₹30,000 mark; under correct logic, neither individual code has breached its own threshold.

What payment code 1027 replaced (1961 Act → 2025 Act)

Section 194J under the Income Tax Act 1961 was the home of professional fees TDS for over three decades. The 2025 Act absorbs the 10% professional-services portion of 194J into code 1027 under Section 393(1) Sl. 6(iii).D(b), and the 2% technical-services portion of 194J into code 1026 under Section 393(1) Sl. 6(iii).D(a). Rates, thresholds, and the underlying sub-categories carry over unchanged.

Cross-era reconciliation: an audit invoice for FY 2025-26 work, raised on March 31, 2026 and paid on April 10, 2026 — the deduction date governs. Paid April 10, 2026 means code 1027 challan; the legacy Section 194J reference is no longer used on the deposit. But if the same firm had been paid on March 28, 2026 with a separate retainer invoice, that earlier challan used Section 194J and the Q4 FY 2025-26 return (filed by May 31, 2026) carries the legacy section identifier. The Section 393 TDS reconciliation framework covers the dual-mode matching logic.

The new Income Tax Act 2025 section mapping lists every legacy-to-new mapping in one table.

Form 168 reconciliation for payment code 1027

Form 168 columns for code 1027 entries include a service sub-type tag — professional, royalty, or non-compete — that did not exist in Form 26AS at the same granularity. This sub-type tag is the join key for rate validation within code 1027 (all three sub-types deduct at 10%, so a 10%-deduction line tagged “royalty” is internally consistent). A Form 168 line showing 10% deduction with a “technical” sub-type tag would be inconsistent — technical lines belong on code 1026, not code 1027 — and surfaces as a system flag during return processing.

Pitfalls when joining Form 168 code 1027 lines to the AP ledger:

• Code drift: the deductor coded an invoice as code 1027 (professional, 10%) but your AP ledger has it under technical services (code 1026, 2%). Either the deductor over-deducted or your master is wrong.
• Threshold double-count: the per-code counter on the deductor’s side does not match the per-code counter on your receivable ledger because one side is aggregating professional (1027) + technical (1026) into a single counter.
• Royalty as advance: royalty advances against future earnings are deductible under code 1027 at 10% but sometimes mis-coded as contract advance under code 1023 (contractor Ind/HUF) or 1024 (contractor other).

Common reconciliation issues for payment code 1027

Three operational patterns drive 80% of code 1027 disputes:

1. Software fee classification. Software licences purchased from a resident publisher land in the professional / technical bucket. Whether the licence is technical (code 1026 at 2%) or royalty (code 1027 at 10%) depends on rights conveyed. Vendor master needs an explicit licence-nature flag.
2. Consultancy retainer overlap. A retainer paid to a management consultant may be split — strategic advisory (code 1027 professional, 10%) + implementation execution (code 1026 technical, 2%) — across the same invoice. Splitting at invoice line level is needed; aggregate-only invoices force a conservative 10% blanket on code 1027.
3. Inter-company professional charges. A parent company charging professional fees to a subsidiary under cost allocation often defaults to code 1024 (contractor other, 2%) in poorly configured ERPs; if the underlying nature is professional, it should be code 1027 at 10%.

These patterns and others are documented in our TDS reconciliation software overview, and the broader Indian reconciliation surface is covered in reconciliation software India.

For the full set of codes across Sections 392 / 393, see the TDS payment codes 1001–1092 master reference. Authoritative text is on the Income Tax India e-filing portal, where the Income Tax Act 2025 enrolled text and CBDT notifications on payment code 1027 are published.