TDS Section 194J : Amendment as per Finance Act 2020

Dinesh Singh | Last updated: 12 April 2020

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The Finance Act 2020 has amended Section 194J of the Income Tax Act, reducing the TDS rate on fees for technical services (excluding professional services) from 10% to 2% effective April 1, 2020. The article clarifies the definitions of 'professional services' and 'fees for technical services' as per the Income Tax Act. It also mentions the CBDT's instruction allowing the extension of lower TDS certificates until June 2020.

The present article features the amendment to TDS section 194J of the Income-tax Act, 1961 by the Finance Act, 2020.

As per the proposed amendment to TDS section 194J, TDS on fees for technical services (other than professional services) is reduced from 10% to 2% with effect from 1st April, 2020. Till 31st March, 2020, the TDS rate applicable to both fees for professional services and technical services is 10%.

TDS Section 194J: Reduced Rates for Technical Services

Explanation (a) below section 194J defines ‘professional services’ to mean services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Central Board of Direct Taxes (CBDT) for the purposes of section 44AA or of this section.

CBDT has vide Notification Nos.SO 17(E) dated 12th January, 1977, SO.2675 dated 25th September, 1992 and SO 385(E) dated 4th May, 2001 notified certain professions for the purposes of section 44AA of the Income-tax Act viz Profession of Authorised Representative, Profession of Film Artist (actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screenplay writer, dialogue writer and dress designer), Profession of Company Secretary, Profession of Information Technology.

Further, CBDT has vide notification no.S.O.2085(E) dated 21st August, 2008 notified the certain services rendered by Sports Persons, Umpires and Referees, Coaches and Trainers, Team Physicians and Physiotherapists, Event Managers, Commentators, Anchors and Sports Columnists

From the above definition of professional services, it is clear that the manpower services provided by Randstad to your company are not professional services under section 194J of the Income-tax Act.

Coming to the definition of ‘fees for technical services’ under section 194J. Explanation (b) below section 194J provides that the term ‘fees for technical services’ shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9.

Explanation 2 below section 9(1)(vii) defines ‘fees for technical services’ to mean any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel).

You have to deduct TDS @ 2% or at a rate based on the lower TDS certificate on technical services (other than professional services) which you may receive in future, whichever is lower, on payments made to suppliers effective from 1st April, 2020 and oblige.

In case you had already received a lower TDS certificate for the Financial Year 2019-20, kindly continue the same rate till 30 June 2020 in view of the recent direction by the Central Board of Direct Taxes (CBDT) vide instruction F. No. 275/25/2020-IT(B) dated 31 March 2020, permitting extension of validity of such lower TDS certificate even for financial year 2020-21 till June 2020.

FAQ :

The Finance Act 2020 reduced the TDS rate on fees for technical services (other than professional services) from 10% to 2%, effective from April 1, 2020.

'Professional services' include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and advertising professions, as well as others notified by the CBDT.

'Fees for technical services' include any consideration for rendering managerial, technical, or consultancy services, including the provision of technical or other personnel.

From April 1, 2020, you need to deduct TDS at 2% or at a lower rate specified by a TDS certificate, whichever is less, on payments for technical services (excluding professional services).

Yes, if you had a lower TDS certificate for FY 2019-20, its validity can be extended until June 2020, as per a CBDT instruction.