Income Tax Diary

Section 194JA and Section 194JB are not the engrossed sections or provisions in the Income Tax Act, 1961 (“Act”) but are segregated section codes for the section 194J of the Act for the purpose of filing of e-TDS return to distinguish deduction of tax (TDS) under section 194J either at 2% or 10%.

Finance Act 2020 has introduced certain changes in the TDS section 194J of the Act. Section 194J provides for deduction of income tax from the payments made towards fees for professional or technical services at the rate of 10 per cent.

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The rate of TDS for both the ‘fees for professional services’ and ‘fees for technical services’ is 10 per cent.

The amendment has reduced the rate of TDS for payments made towards ‘fees for technical services’ to two per cent.

Section 194J of the Act provides that any person, not being an individual or a HUF, who is responsible for paying to a resident any sum by way of 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, shall, at the time of payment or credit of such sum to the account of the payee, deduct an amount equal to ten per cent as income-tax.

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Changes in TDS and TCS Provisions in Union Budget 2020

Section 194C of the Act provides that any 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 shall at the time of payment or credit of such sum deduct an amount equal to one per cent in case payment is made to an individual or a HUF and two per cent in other cases.

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It is noticed that there are large number of litigations on the issue of short deduction of tax treating assessee in default where the assessee deducts tax under section 194C, while the tax officers claim that tax should have been deducted under section 194J of the Act.

Therefore to reduce litigation, section 194J was amended to reduce the rate for TDS in section 194J in case of fees for technical services (other than professional services) to 2 per cent from the existing 10 per cent. The TDS rate in other cases under section 194J would remain the same at 10 per cent.

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Amendment in TDS Section 194J by Finance Act, 2020

Therefore, the intention of the legislature to reduce the rate of TDS in section 194J is to bring the parity with section 194C for technical fees. Since in many cases fees for technical services may be classified under section 194C or section 194J, however, the difference in rates of TDS was inviting litigation. In order to reduce litigation, reduced rate for TDS in case of fees for technical services (other than professional services) to two per cent from existing ten per cent provided to align the same with the rate of TDS on works contract under section 194C.

In the nutshell, the rate of TDS following two nature of payments is reduced to 2 per cent instead of 10 per cent under section 194J from 01-04-2020 by the Finance Act, 2020:

1. Fees for technical services (not being in the nature of professional services).

2. Royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films.

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For others, the 10 per cent rate of TDS shall continue to apply.

Section Code 94JA and Section Code 94JB

After the introduction of two rates in section 194J – TDS @ 10% and TDS @ 2%, it is imperative for the e-TDS return utility to segregate the transactions of tax deduction under section 194J in two parts for 10% and 2% separately.

In order to identify the TDS transactions which were deducted @ 2% or 10% section 194J is divided into two section codes – 94JA and 94JB. As per the utility, section code 194JA is assigned to denote deduction of tax under section 194J @ 2%.

Similarly, section code 194JB is assigned to denote deduction of tax under section 194J @ 10%.

In the e-TDS return utility RPU version 3.5, the following section codes are used to distinguish TDS u/s 194J:

Section Code in e-TDS return Utility for Section 194J

Note: Due to ongoing COVID-19 pandemic and to provide relief to taxpayers, the rate of TDS under section 194J for the period from 14.05.2020 to 31.03.2021 is reduced to 1.5% for section code 94JA and 7.5% for section 94JB. For this purpose, section 197B is inserted in the Act by the Taxation and Other Laws (Relaxation and Amendment of Certain. Provisions) Act, 2020.

Read further:

Reduction in Rate of TDS and TCS Notified by Section 197B of Income Tax

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