Topic 2: 6 changes in income tax laws that come into effect from Sept 1
Income tax related changes announced in the Budget usually come into effect from April 1. However, since the full Budget for FY 2019-20 was presented in July this year after the general elections, there are certain tax changes that will come into effect from September 1, 2019.
Here are those main changes in tax laws that will come into effect from September 1
1.TDS on additional payments made when purchasing immovable property
From September 1, while buying a property, you will have to include the payment made for other services or amenities such as club membership fee, car parking fee, electricity and water facility fee and so on when computing the amount paid for the property for the purpose of deducting TDS. Previously, tax was deducted by the buyer from the payment made for the purchase of property. However, other payments such as club membership fees etc. were usually subtracted from the total consideration to compute the amount of TDS. The primary reason for this stems from the fact that 'consideration for immovable property' was not defined properly in the Income Tax Act. Remember, the TDS will continue to be deducted at the rate of one per cent if the value of the property exceeds Rs 50 lakh.
2.TDS on cash withdrawals from bank account
Cash withdrawals exceeding Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office will invite levy of TDS from September 1. The move is aimed at discouraging large cash transactions and also to promote a less cash economy. A new section 194N has been inserted in the Income Tax Act which defines that TDS will be levied at the rate of two per cent on cash withdrawals made from the account.
3.TDS on payments made by individuals and HUFs to contractors and professionals
From September 1, individuals and HUFs making a payment to contractors and professionals exceeding Rs 50 lakh in aggregate per annum will also be required to deduct TDS at the rate of 5 per cent. This would mean that individuals making payments over this limit for house renovation, wedding functions or for any other purpose to a single professional in a year would be required to deduct tax at the time of making the payment. A new section 194N has been inserted in the Income Tax Act for this purpose. However, in order to provide ease of compliance, individuals and HUFs, deducting the tax will not be required to obtain TAN (tax deduction account number). The new law will be applicable to all the payments made by the individual whether for personal use or for business purposes (in case their accounts are not required to be audited.)
4.TDS on non-exempt portion of life insurance
If life insurance maturity proceeds received by you are taxable in your hands, then TDS will be deducted at the rate of five per cent on the net income portion. The net income portion is defined as the total sum received less of total amount of insurance premium paid.
Currently, proceeds received at the maturity of a life insurance policy are exempted from tax if the annual premium paid does not exceed 10 per cent (20 per cent in case of insurance policies sold prior to April 2012) of the sum assured.
If the maturity proceeds received by an individual are taxable, then TDS will be deducted only on the net income portion and not on the total amount paid. Remember TDS will be deducted at the rate of 5 per cent in case the taxable proceeds, i.e., net income portion exceeds Rs 1 lakh. Prior to this TDS was deducted at the rate of 1 per cent on the total amount paid.
5.If PAN is not linked with Aadhaar
As per rules existing prior to changes announced in July Budget 2019 PAN would have become invalid if not linked with Aadhaar by a specified deadline. This would have meant that in case of a person's PAN becoming invalid, it would be treated as if the person never had a PAN.
v However, to protect the validity of previous transactions done using the PAN, Budget 2019 changed the rules such that PAN will become now become inoperative but not invalid if not linked with Aadhaar by the specified deadline.
However, the government is yet to clarify the rules regarding what will happen if the PAN becomes inoperative if not linked with Aadhaar.
6.Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions
Another important announcement in Budget 2019 was inter-changeability of PAN and Aadhaar. However, Aadhaar can be quoted in lieu of PAN only for certain prescribed transactions. Though the new law comes into effect from September 1, the government is yet to notify the certain prescribed transactions.
Here are those main changes in tax laws that will come into effect from September 1
1.TDS on additional payments made when purchasing immovable property
From September 1, while buying a property, you will have to include the payment made for other services or amenities such as club membership fee, car parking fee, electricity and water facility fee and so on when computing the amount paid for the property for the purpose of deducting TDS. Previously, tax was deducted by the buyer from the payment made for the purchase of property. However, other payments such as club membership fees etc. were usually subtracted from the total consideration to compute the amount of TDS. The primary reason for this stems from the fact that 'consideration for immovable property' was not defined properly in the Income Tax Act. Remember, the TDS will continue to be deducted at the rate of one per cent if the value of the property exceeds Rs 50 lakh.
2.TDS on cash withdrawals from bank account
Cash withdrawals exceeding Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office will invite levy of TDS from September 1. The move is aimed at discouraging large cash transactions and also to promote a less cash economy. A new section 194N has been inserted in the Income Tax Act which defines that TDS will be levied at the rate of two per cent on cash withdrawals made from the account.
3.TDS on payments made by individuals and HUFs to contractors and professionals
From September 1, individuals and HUFs making a payment to contractors and professionals exceeding Rs 50 lakh in aggregate per annum will also be required to deduct TDS at the rate of 5 per cent. This would mean that individuals making payments over this limit for house renovation, wedding functions or for any other purpose to a single professional in a year would be required to deduct tax at the time of making the payment. A new section 194N has been inserted in the Income Tax Act for this purpose. However, in order to provide ease of compliance, individuals and HUFs, deducting the tax will not be required to obtain TAN (tax deduction account number). The new law will be applicable to all the payments made by the individual whether for personal use or for business purposes (in case their accounts are not required to be audited.)
4.TDS on non-exempt portion of life insurance
If life insurance maturity proceeds received by you are taxable in your hands, then TDS will be deducted at the rate of five per cent on the net income portion. The net income portion is defined as the total sum received less of total amount of insurance premium paid.
Currently, proceeds received at the maturity of a life insurance policy are exempted from tax if the annual premium paid does not exceed 10 per cent (20 per cent in case of insurance policies sold prior to April 2012) of the sum assured.
If the maturity proceeds received by an individual are taxable, then TDS will be deducted only on the net income portion and not on the total amount paid. Remember TDS will be deducted at the rate of 5 per cent in case the taxable proceeds, i.e., net income portion exceeds Rs 1 lakh. Prior to this TDS was deducted at the rate of 1 per cent on the total amount paid.
5.If PAN is not linked with Aadhaar
As per rules existing prior to changes announced in July Budget 2019 PAN would have become invalid if not linked with Aadhaar by a specified deadline. This would have meant that in case of a person's PAN becoming invalid, it would be treated as if the person never had a PAN.
v However, to protect the validity of previous transactions done using the PAN, Budget 2019 changed the rules such that PAN will become now become inoperative but not invalid if not linked with Aadhaar by the specified deadline.
However, the government is yet to clarify the rules regarding what will happen if the PAN becomes inoperative if not linked with Aadhaar.
6.Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions
Another important announcement in Budget 2019 was inter-changeability of PAN and Aadhaar. However, Aadhaar can be quoted in lieu of PAN only for certain prescribed transactions. Though the new law comes into effect from September 1, the government is yet to notify the certain prescribed transactions.