Finance minister Nirmala Sitharaman's Budget 2020 on Friday reduced the rate for tax deducted at source (TDS) in case of fees for technical services under Section 194J of the Income Tax Act 1961 to two percent from the existing 10 percent from April 1, 2020.

The Section 194J of the I-T Act deals with TDS on payments for services such as — fees for professional services and technical services, royalty and non-compete fee as referred under Section 28 (VA) of I-T Act. So far these services were charged with a TDS at 10 percent to a resident over Rs 30,000 during a financial year.

"Therefore to reduce litigation, it is proposed to reduce the rate for TDS in section 194J in case of fees for technical services (other than professional services) to two percent from existing ten percent. The TDS rate in other cases under section 194J would remain the same at ten percent. This amendment will take effect from 1st April 2020," the budget document presented to Lok Sabha on Friday said.

The change in revised TDS rate is expected to address confusion and tax litigations arising out of the issue of less deduction of tax, particularly in their application on services rendered under Section 194J and Section 194C.

"It is noticed that there is a 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," the budget document said.

The Section 194C of the I-T 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 percent in case payment is made to an individual or a HUF and two percent in other cases."

The Section 194J of the Act provided "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 percent as income-tax."

A recent ITAT order on litigation about the payments made to various artists in reality TV shows as guests or judges said they are liable for TDS under Section 194C and not Section 194J, according to report on Yahoo.com.

The tax department in the above case had contended that TDS on payments to such artists (for professional and technical services) should have been deducted at the rate of 10 percent as per Section 194J, the report said.

However, the tribunal held that a person engaged in the production of reality shows is not equivalent to the one engaged in the production of films, the report added.

Finance minister Nirmala Sitharaman presented the Union Budget 2020 in the Parliament on Saturday with the key announcements being the new tax slabs, proposal to raise banks' deposit insurance, LIC IPO launch, among others.

The government vowed to boost the income of Indians and their purchasing power, in a bid to revive domestic economic growth that has slumped.