Important changes in Income-Tax w.e.f. September 1, 2019
By CA Julfesh Shah :
Income-Tax related changes announced in the Union Budget 2019 generally come into effect from April 1, but since this year Budget was presented in July, certain changes in Income- Tax which are made effective from September 1, 2019 are essential to be updated and understand thoroughly. Some of the key changes are as under:- Interchangeability of PAN and Aadhar: Important announcement in Budget 2019 was that Aadhar can be quoted in lieu for PAN. However it can be quoted for certain prescribed transactions only. However, Government is yet to notify ‘Certain prescribed transactions.’ Consequence of not linking PAN with Aadhar:
As per rules existing prior to changes announced in the Budget, PAN would have become invalid if not linked with Aadhar 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. However to protect the validity of previous transactions done using the PAN, certain changes were made in rules of Budget 2019 such that PAN will become inoperative and not invalid if not linked to Aadhar by specified deadline TDS on additional payments made when purchasing immovable property: W.e.f. September 1, 2019 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.
Earlier, 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. However, the TDS will continue to be deducted @ 1% if the value of the property exceed Rs 50 lakh. TDS on payments made by individuals and HUFs to contractors and professionals: While making payment to contractors and professionals by individuals and HUFs (who are not required to deduct tax u/s 194C and 194J )are now required to deduct tax @ 5% for any payment exceeding Rs 50 lakh in aggregate in a year to a single professional/contractor as per newly inserted section 194M in Income Tax Act. 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. Which would also cover payments made for any activity such as house construction/renovation, wedding ceremony or for any other purpose exceeding given limit to single professional in year. TDS on cash withdrawals from bank account: With the aim of discouraging large cash transactions and promotion of less cash economy a new section 194N has been inserted in the Act, according to which, tax is required to be deducted @ 2% by the payer (any bank, co-operative bank and post office) while making payment to any taxpayer in cash from a taxpayer’s bank account/post office account on the amount in excess of Rs 1 crore. The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not a taxpayer’s individual account. For example, a person having three bank accounts with three different banks, he can withdraw cash of Rs 1 crore * 3 = Rs 3 crore without any TDS.
The cash withdrawal made by any taxpayer from the bank accounts maintained by such recipient will only attract TDS under Section 194N. For instance, if a bank makes a cash payment of more than Rs 1 crore in a FY to its account holder (i.e any taxpayer) from the account maintained by such taxpayer, then the bank will have to deduct TDS. In the above situation, there is an ambiguity that whether bearer cheque given to any person (like vendor) to collect payment from the bank will be covered under section 194N and whether the bank is liable to deduct tax on the funds of the account holder in respect of the bearer cheque issued to third party.
The provisions of Section 194N will be applied to the payments made on or after September 1, 2019. Banks and FIs can be asked to report even small transactions: Till now banks and other financial institutions (FIs) are required to report specified financial transactions if the amount exceeded the threshold limit which was Rs 50,000. These transactions were to be reported to the Income-Tax Department through a Statement of Financial Transactions (SST) required to be filed by all banks and Ifs. Now, this minimum floor of Rs 50,000 has been removed via legislation introduced in the Budget. This means that from September 1, banks and Ifs can be asked to report even smaller transactions to the tax department which in turn can use the data to check your transactions.
TDS on non-exempt portion of life insurance: TDS will be deducted at the rate of five per cent on the net income portion if life insurance maturity proceeds received by a person are taxable in one’s hands. The net income portion is defined as the total sum received including any bonus paid by the insurance company less the total amount of insurance premium paid which is further reduced by any sum exempted U/s 10D. 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. These are some of the important amendments which need to be taken care of by the stakeholder while dealing with the Income-Tax laws. (The author is a renowned practising Chartered Accountant)