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New Income Tax provisions effective from 1st September 2019
Law changes not only from the beginning of the year but from the middle of the year as well. This year, final budget was presented in July and certain amendments are made applicable from 1st September. Let us have a look at the amendments which are effective from 01-09-2019.
- TDS on non-exempt portion of life insurance [Section 194-DA]:
Amount received at the maturity of a life insurance policy are exempt from tax U/s 10(10D) if the annual premium is not exceeding 10% of the sum assured (20%in case of policies issued prior to 01-04-2012). Further, if the amount received is not exempt u/s 10(10D) then TDS on the gross amount is required u/s 194DA @1%. There were confusions as to whether entire amount received is taxable as income or only the difference between the amount received and amount invested is taxable as income. Issue becomes more controversial in view of the fact that the TDS was required to be done on entire amount. Issue is now settled by amending section 194DA which logically provides for TDS @ 5% on the net amount only.
- TDS on cash withdrawals from bank account [Section 194N]:
In order to curb the circulation of cash in the economy a new section, section 194N is inserted in the Income Tax Act -1961 w.e.f 01.09.2019. Now, cash withdrawals exceeding Rs 1 crore on aggregate basis during the year from an account held with a bank & post office will be subject to TDS @2%. No TDS is required on cash withdrawn till 30.08.2019. However, for reckoning the limit of Rs. 1 Crore, even cash withdrawals prior to 01.09.2019 will also be aggregated.
- TDS on payments made by individuals and HUFs to contractors and professionals [Section 194M]:
Most of the TDS provisions originally were applicable to taxpayers who were engaged in business activity. The scope was stretched so as to include other categories of taxpayers like those purchasing immovable property exceeding Rs. 50 Lakh or those making payment of rent exceeding Rs. 50,000/- p.m. Effective from 1st September, the scope is further widened by introducing new section 194N which provides that individuals & HUF taxpayer need to do TDS @ 5% if they are making payment to contractors and professionals exceeding Rs 50 Lakh p.a. As a result, if any individuals make payments exceeding Rs. 50 Lakh towards expenses like house construction, renovation, wedding, personal events, etc in a year to any person then they would be required to deduct tax at the time of making the payment. No TAN (tax deduction account number) is required in such cases & compliance need to be done by using PAN.
- Expanding the scope of TDS while purchasing immovable property [Section 194-IA]:
Earlier, only the payment of sale consideration for purchase of immoveable property was liable for Tax Deduction at Source (TDS) u/s 194-IA. Payment towards various other amenities like car parking fee, electricity and water facility fees, services club membership fees, etc was not required to be considered earlier while doing TDS. Now, payment towards all such amenities also attracts TDS @1%.
- Banks and FIs to report even small transactions
Government is collecting information from multiple sources & avenues.
One of the most important sources of information is Statement of Financial Transactions (SFT) which is required to be filed by banks and FIs. Earlier, information was required to be submitted only if the amount is above some threshold. In most of the reportable transactions, the limit was Rs 50,000 or more. Now, the scope has been widened & banks/FI may even be required to report transactions below threshold limit of Rs. 50,000/-.
- Linking of PAN with Aadhaar:
Prior to amendment, not linking of PAN with Aadhar within a specified time frame would make it invalid. In order to protect the validity of previous transactions done using the PAN, an amendment has been done in section 139AA to provide that if the PAN is not linked with Aadhar it will not become invalid but will become inoperative after the notified date. The details rules regarding this may be notified shortly.
- Inter-Changeability of PAN & Aadhar:
In order to keep an audit trail of such transactions, for widening and deepening of the tax base, a new clause (vii) is added in section 139A(1) so as to provide that every person, who intends to enter into certain prescribed transactions and has not been allotted a PAN, shall also apply for allotment of PAN. To ensure ease of compliance, it is also provided for inter-changeability of PAN with the Aadhaar number. Inter-changeability of PAN and Aadhaar is one of the most important amendments with far reaching implications.