Section 194J : Reduction of TDS on Technical Services to 2%


Section 194J : Reduction of TDS on Technical Services to 2%

This is indeed a good news the Reduction of TDS on technical services to 2% has been proposed by Budget 2020.

Lets discuss this proposal in brief via this article.

Section 194J provides for dedution of TDS @10% in case:

  • Fees for professional services,
  • or fees for technical services,
  • or any remuneration or fees or commission by whatever name called (other than those on which tax is deductible under section 192 of the Act, to a director),
  • or royalty or any sum referred to in clause (va) of section 28

is paid to any resident by any person other than an individual or HUF.

Now Section 194C also provided for deduction of TDS where person responsible for paying any sum to a resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract.

Section 194J : Reduction of TDS on Technical Services to 2%
Section 194J : Reduction of TDS on Technical Services to 2%

In this case the rate of TDS was equal to one per cent in case payment is made to an individual or a HUF and two per cent in other cases.

There were large number of ongoing litigations for short deduction of TDS as the Tax deductor claimed that TDS should be deducted u/s 194C while Income Tax Officials claimed that TDS should be paid u/s 194J.

Therefore to reduce litigation, it has been proposed to reduce rate for TDS in section 194J in case of fees for technical services to two per cent from existing ten per cent.

Please note that the TDS rate U/S 194J in other cases under section 194J would remain same @ 10%.

This will reduce large number of litigations and also will unblock large cash flow of the Tax Deductee.

This amendment will take effect from 1st April, 2020. 

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