Analysis of amendment to Section 194J of Income-tax Act 1961

• August 3, 2020
• CA Chandan Agarwal's Office

1. Background:

Finance Act 2020, has reduced withholding tax rates for fees for technical services under Section 194J of the Act to 2 percent from the existing rate of 10 percent.  Memorandum to Finance Bill 2020, clarified that this amendment is introduced to reduce existing litigation on account of classification of services under section 194J (tax deductible at 10 percent) and 194C of the Act (tax deductible at 2 percent).

It is pertinent to note that the withholding tax rates are reduced only for technical services with an exception of fees for professional services.

Further, there is no change in the withholding tax rate on royalty (excluding royalty in relation to sale, distribution or exhibition of cinematographic films) which will continue to be deductible at 10 percent.  Royalty payable towards sale, distribution or exhibition of cinematographic films shall be subject to withholding tax at 2 percent.

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