Some of Finance Minister Nirmala Sitharaman's major income tax related announcements in Budget 2019 came into effect on Sunday. Among them, the changes that will have a direct bearing on the common man's wallet relate to tax deducted at source (TDS). Here's all you need to know about the new norms:
TDS on cash withdrawals of over Rs 1 crore
Under the newly introduced Section 194N, a 2 per cent TDS on cash withdrawals of Rs 1 crore or more from banks or post offices kicked in on September 1. The aim behind this move is to discourage cash transactions and move towards less cash economy.
The Central Board of Direct Taxes (CBDT) clarified last week that if a person has already withdrawn Rs 1 crore or more in cash up to August 31 in the current fiscal, this TDS amount will not apply. Only subsequent withdrawals will be considered. "However, since the threshold of Rs 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N of the Finance Act shall be counted from April 1, 2019," the tax regulator added.
According to Cleartax, 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 can withdraw cash up to Rs 3 crore in a fiscal without any TDS.
TDS at the time of purchasing immovable property
Under Section 194-IA of the Income Tax Act, when a buyer buys immovable property, that is a building or part of a building or any land other than agricultural land, costing more than Rs 50 lakh, he has to deduct TDS at 1% of the total sale consideration. But in Budget 2019, Sitharaman amended the Act to include all charges such as 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 the transfer of immovable property, while calculating TDS. This new rule is applicable for immovable property purchased on or after September 1.
So a house costing Rs 60 lakh, which till last week would incur TDS payment of Rs 60,000 (@1 per cent), will now be a costlier proposition. Assume you have paid Rs 2 lakh towards parking fee, Rs 1 lakh for water facility fee and Rs 1 lakh for electricity fee on September 1, your total sale consideration for the same house will now be Rs 64 lakh and the TDS payable will be Rs 64,000.
TDS on payments made to professionals and contractors
Another new addition to the Income Tax Act - introduced in the Finance Bill, 2019 - is Section 194M which applies to money paid by an individual or Hindu Undivided Family (HUF) for carrying out any contractual work or providing any professional service. If the payment made to a contractor or a professional or brokerage exceeds Rs 50 lakh in a financial year, the taxpayer is required to deduct 5 per cent TDS at the time of crediting such amount.
According to experts, this amendment was introduced because a major amount of payments made for contractual works and professional fees were previously escaping the TDS net, creating a scope for tax evasion. "TDS amount will be deducted on any payment made after this date even if the contract existed before," says Cleartax, adding that if the PAN of the deductee is not available, then TDS will be deducted at 20 per cent.
The definition of contractual work covers advertising, broadcasting or telecasting, carriage of goods and passengers by any mode of transportation, other than railways, catering and manufacturing or supplying a customised product by using material purchased from the customer. On the other hand, professional services will include remuneration paid to directors excluding salary, such as sitting fees to attend board meetings, royalty and technical/professional fees.
TDS on life insurance proceeds
If life insurance maturity proceeds received are taxable, then the TDS will now 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 per cent of the gross maturity payout under the policy.
According to Cleartax, any money received from a life insurance policy, where the premium paid on the policy is more than 10 per cent of the sum assured for policies issued after April 1, 2012 - or 20 per cent for policies issued before this date - is fully taxable. Keep in mind that the exceptions to this rule under Section 10(10D) include policies taken after April 1, 2013, on the life of a person with a disability or a disease specified under Sections 80U and 80DDB, where the amount received on maturity is tax-free. The precondition is that the premium paid cannot exceed 15 per cent of the sum assured.