Union finance minister Nirmala Sitharaman in her maiden budget speech announced some income tax-related changes which will come into effect from Sunday (September 1), September 1. Her key announcements were that the tax deducted at source (TDS) will be levied at the rate of 2 per cent on cash payments worth more than Rs 1 crore. Also, the TDS will be levied if life insurance maturity received is taxable. Further, the government amended 194-IA of Income Tax Act to include all charges of the nature of club membership fee, car parking fee, or any other charges of similar nature under immovable property for levy of the TDS. Here is a 5-point explainer of new tax-related changes that have come into effect in India from September 1.
1. TDS on additional payment made when purchasing immovable property
The government had amended 194-IA of Income Tax Act during the budget announcement in July in which FM Nirmala Sitharaman announced that if any person purchases an immovable property of Rs 50 lakh or more than that (excluding agricultural land), is required to deduct TDS at the rate of 1 per cent from September 1, 2019, onward. The amendment included all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of immovable property.
2. TDS on cash withdrawals from bank accounts
The government has included a new section 194N in the Act. With this new inclusion, the TDS can be levied at the rate of 2 per cent on cash payments worth more than Rs 1 crore in aggregate made within the year, by a cooperative bank, a banking company, or post office to any individual from an account, which is maintained by the recipient.
3. TDS on payments made by HUF/Individual to professionals and contractors
Under this provision announced in the Budget, if the payment made to a contractor or a professional or a brokerage exceeds Rs 50 lakh in a year, an individual or HUF (Hindu Undivided Family) is required to deduct 5 per cent TDS at the time of crediting such amount. This will help check evasion but may lead to a higher burden of compliance for the payer.
This means that individuals making payments of over Rs 50 lakh, let's say, house renovation, wedding functions or any other purpose to a single professional in a year would be required to deduct tax at the time of making the payment.
4. TDS on life insurance
If life insurance maturity proceeds received are taxable, then the TDS will be deducted at the rate of 5 per cent on the net income portion. The net income portion is defined as the total sum received less of the total amount of insurance premium paid. Earlier, the TDS was 1% of the gross maturity payout under the policy.
6. Interchangeability of Pan and Aadhaar
Union finance minister Nirmala Sitharaman in her Budget speech had announced that taxpayers who don't own a PAN card (Permanent Account Number) can now file Income Tax returns with their Aadhaar Card also. The FM allowed the interchangeability of PAN and Aadhaar card for filing tax returns.