Prior to the Finance Act, 2020, there was a uniform rate of TDS under Section 194J of the Income Tax Act, the amendment has now introduced another rate of 2% TDS in addition to the existing 10% for certain payments.
Now the as amended by the Finance Act, 2020, following nature of payments will attract 2% TDS;
- Fee for Technical Services (Where it is not being in the nature of professional services) and
- Royalty (Where it is in the nature of consideration for sale, distribution or exhibition on cinematographic films.
For others, previous rate of 10% will continue to apply.
The meaning of Fee for Technical Services is as defined by the Explanation 2 of Section 9(1)(vii) and meaning of Royalty is as defined by Explanation 2 of Section 9(1)(vi). Further prior to the Finance Act, 2020, there was no significance of knowing a payment whether it falls under Professional or Technical Fee or Royalty since all of them will fall under the same rate of TDS of 10%.
As the rate of TDS on Fee for Technical Services will be applicable at reduced rate of 2% only if it not being in the nature of professional services, let us look into the definition of Professional Services covered under Section 194J;
- Legal
- Medical
- Engineering
- Architecture
- Accountancy
- Technical Consultancy (will be disputed area after amendment made by Finance Act, 2020)
- Interior Decoration
- Authorized Representatives
- Film Artists
- Certain Sports Activities related persons
- Company Secretaries
- Information Technology
- Sports Persons
- Umpires (Sports Personnel)
- Referees (Sports Personnel)
- Coaches and Trainers (Sports Personnel)
- Team Physicians (Sports Personnel)
- Physiotherapists (Sports Personnel)
- Event Managers (Sports Personnel)
- Commentators (Sports Personnel)
- Anchors (Sports Personnel)
- Sports Columnists (Sports Personnel)