Amendments in TDS Provision in Finance bill, 2020 – Section 194J, 194, 194K

corporate tax rate
corporate tax rate

The Union Budget 2020 has brought several changes in the provisions of TDS which will take effect this financial year. Here are the Key Amendments that were introduced in the TDS Provision:

Section 194J-Fees for professional or technical services
There has been a change in the percentage of TDS rate which was 10% earlier for both professional and technical services. The rate has been reduced to 2% of such sum in case of technical services (not being professional services) and 10% of such sum in rest other cases.

The term ‘Professional Services’ means services rendered by a person carrying on Legal; Medical; Engineering or architectural profession or accountancy profession; Technical consultancy or interior decoration or advertising; or such other profession as notified by Board for the purpose of section 44AA.

Fees for technical services’ means any consideration for the rendering of any managerial, consultancy, or technical services. It includes the provision of services of technical or other personnel. It doesn’t include consideration for any construction, mining, assembly or like project undertaken by the recipient or consideration chargeable under the head ‘salary’.

Analysis- Technical Services TDS @ 2% and Professional Services & others cases of 194J @ 10%. However definition of both technical and profession services includes the term “Consultancy or Technical Services”, hence it opens a wide scope of variability in application of this new amendment.

Section 194– TDS on Dividends           

Dividend declared by domestic companies were subject to Dividend Distribution Tax (DDT) and dividend received was not taxable in the hands of recipient except income exceeding 10 Lakhs. With effect from 1st April 2020 , dividend received is taxable in the hands of the recipient if paid in any mode if income exceeds Rs. 5000, at the rate of 10 %.

Analysis- Dividend distribution tax has been withdrawn and the liability of taxability on dividend vests in the hands of the recipient. Also basic threshold is increased from Rs 2,500/- to Rs 5,000/- for dividend paid other than cash. Further, earlier the mode of payment was given as “an account payee cheque or warrant” which is now changed to any mode. 

Section 194K- TDS on Income from Certain Units

The said section was omitted w.e.f 01.06.2016 by the Finance Act 2016 and now the same is reintroduced. Section specifies any person responsible for paying to a resident any income in respect of

  1. units of a Mutual Fund specified under clause (23D) of section 10 or
  2. units from the administrator of the specified undertaking or
  3. units from the specified company

shall at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct TDS at the rate of 10%. This section shall not apply if such income or aggregate of such income in a financial year does not exceed 5000 rupees.

Analysis- The threshold limit is Rs.5,000/- and this section applies to income only from the above specified units and not form Capital Gain


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