We need an opinion regarding new provision of section 194J w.e.f. 1st April 2020: As per provision, the rate of TDS for fees for "TECHNICAL SERVICES" is 2% and fees for "PROFESSIONAL SERVICES" is 10%. Please guide how can we differentiate between these two classes of services with the reference of Section 44AA(1) and Explanation 2 to Section 9(1)(vii). Please guide as to what should be the rate of TDS in the following services: 1. Software Development Services 2. Software maintenance Services 3. Software Installation Services 4. Software Renewal/Upgradation Charges 5. Software AMC 6. Software Testing Services 7. Supply of Software 8. Engineers of temporary basis 9. AMC to Hospital for Regular Health Check up of Staff 10. BPO services 11. System Development and process implementation services with or without software implementation. 12. Annual Accounting Services. It will be great if we find any decided case law in this regard.

Reply—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, it is proposed to reduce rate for TDS in section 194J in case of fees for technical services (other than professional services) to two per cent from existing ten per cent. The TDS rate in other cases under section 194J would remain same at ten per cent.

For the purposes of this section,—

 (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette 

 (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 of Income tax act

"fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

As this is a recent amendment there is no judgment in this regard.

In our opinion Accounting and BPO service will fall under professional service and rest all services would fall under fee or technical service,  however professionals may have different views on this.