Important changes in Tax Deducted at Source (TDS) which are applicable from 01.09.2019

Union Budget 2019 has incorporated various important changes in Income Tax Act, 1961.  Few important amendments were also made in TDS provisions which have become applicable w.e.f. 01st September 2019.  These amendments are represented here:

  1. TDS on non-exempt portion of life insurance pay-out (Section 194DA)

Under section 194DA of the Act, a person is obliged to deduct tax at source if it pays any sum to a resident under a life insurance policy, which is not exempt under sub-section (10D) of section 10. The present requirement is to deduct tax at the rate of one per cent of such sum at the time of payment.

Now, the Finance Act, 2019 has provided for tax deduction at source at the rate of five per cent on income component of the sum paid by the person.

Our Comment: Above amendment is a welcome amendment and will finish the genuine hardship occurred to the tax payer. Earlier 1% TDS was being deducted by the Insurance companies on the total maturity amount of the policy and the gross amount was being reflected in Form 26AS of the receiver. On the other hand the receiver was required to pay tax only on the net income (i.e. after deducting the amount of insurance premium paid by him from the total sum received).  Due to same, the tax payers were receiving the notice for mismatch of Income reported in Form 26AS and Income Tax Returns filed.

 

  1. Amendment in Section 194IA- TDS on additional payments made on purchase of an Immovable Property

Section 194IA was inserted through Finance Act, 2013, which provides for levy of TDS at the rate of 1% on the amount of consideration paid or credited for transfer of an immovable property if the value of the property exceeds Rs. 50 lakhs. However, the term ‘consideration for immovable property’ was not defined for the purposes of this section.

Now, the Finance Act, 2019 has made amendment in the section by clarifying the expression “consideration for immovable property” to include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.

Our comment:  Now the government has made it very clear that the buyer of immovable property has to deduct 1% TDS on each and every type of payment made by buyer to the seller while making the purchase of immovable property, whether the amount is included in the value of the registry/transfer document or not.

 

 

  1. TDS on payment by Individual/HUF to contractors and professionals (Section 194M)

Before Union budget 2019 there was no liability on an individual or Hindu undivided family (HUF) to deduct tax at source on any payment made to a resident contractor or professional when it was for personal use. Further, if the individual or HUF was carrying on business or profession which was not subjected to audit, there was no obligation to deduct tax at source on such payment to a resident, even if the payment was for the purpose of business or profession.

Now, the Finance Act, 2019 has inserted a new section 194M in the Act to provide for levy of TDS at the rate of five percent on sum, or the aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an individual or a Hindu undivided family, (who are not required to deduct tax at source under section 194C and 194J of the Act) if such sum, or aggregate of such sums, exceeds fifty lakh rupees in a year.   PAN of the payer will be used to deposit TDS under this section and TAN will not be required.

Our Comment: Now an individual and HUF will have to deduct and deposit TDS @5% if payment made to construction /renovation of house, wedding functions or for any other purpose (whether for business or personal purpose) to a single contractor or professional in a financial year.

 

  1. TDS on cash withdrawal from a Bank Account (Section 194N)

 In order to discourage cash transactions and move towards less cash economy, Finance Act, 2019 has inserted a new section 194N in the Income Tax Act, 1961 to provide for levy of TDS at the rate of two per cent on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.

However, certain recipients are exempt from the application of this provision, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation or any other recipient as notified by Government.

Our Comment:  Till now provisions of TDS were applicable only on the amount of income paid or payable to the payee.  However, with the insertion of section 194N, a new Era of deduction of tax has been started, which prescribe for deduction of tax on non-earning transactions i.e. on the cash withdrawal which do not constitute any income.  Constitutional validity of the provision may be challenged as the provisions of deduction of tax should be applicable only on such sum paid which constitutes income component also (like Section 192, 194C, 194J, 194H etc.).  Section 190 of the Act, also use the word “income” while specifying that tax deduction under Chapter XVII (Collection and Recovery of Tax) shall be made from the income, notwithstanding the fact the regular assessment in respect of which is to be made in a later assessment year.

However, all above amendments are now part of Income Tax Act, 1961 and has been made applicable w.e.f. 01st September 2019 and one must take care of these provisions while making the related transactions.