New Income Tax Rules
Some new income tax rules announced in this year’s Budget comes from September 1, 2019. The full Budget for this year was presented in July this year. Cash withdrawals exceeding ₹1 crore in aggregate in a year from finance institutions will attract TDS while in case of property transactions the definition of immovable property has been widened to include charges like club membership fee and car parking fee for TDS levy. Also, in another income tax rule change, a higher TDS will be levied if life insurance maturity proceeds received are taxable in your hands.
Here are 5 new income tax rules that come into effect from September 1:
1. TDS on cash withdrawal
The government has introduced a new Section called 194N in income tax laws under which cash withdrawals exceeding ₹1 crore in aggregate in a year from banks, post offices or a co-operative society engaged in carrying on the business of banking will attract a TDS @2. Payments made on or after September 1 will attract the provisions of Section 194N.
The income tax department has clarified that cash withdrawal prior to 1 September 2019, will not be subjected to TDS under Section 194N. However, since the threshold of ₹1 crore is with respect to the previous year, the calculation of the amount of cash withdrawal for triggering deduction under section 194N will be counted from 1 April 2019.
2. TDS at the time of purchase of immovable property
The government has amended 194-IA of Income Tax Act 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, under immovable property, for levy of TDS. This comes into effect from 1 September. It is to be noted that the TDS is levied @1% if the value of the property exceeds ₹50 lakh. So now, charges like club membership fee, car parking fee, electricity or water facility fee will also be included for calculation of TDS.
3. Deduct TDS for a professional job
The government has introduced a new Section called 194M in income tax laws under which individual is required to deduct TDS @5% for paying a sum in excess of ₹50 lakh for carrying out any work in pursuance of a contract or by way of fees for professional services during a financial year. Payments made on or after September 1 will attract the provisions of Section 194M.
4. TDS on a life insurance policy
If you are looking to buy a single premium life insurance policy, you need to be aware of the new TDS rule to be effective from September 1, 2019. The maturity proceeds in a life insurance policy are tax-free only if the sum assured is at least ten times of the premium. For example, if the premium is Rs 1 lakh, the sum assured needs to be at least Rs 10 lakh for the maturity value to be tax-exempt. However, in a single premium, the sum assured is generally 1.25 times or 5 times of premium. The maturity amount is subject to TDS by the insurer. Earlier, TDS on the life insurance policy, whenever sum assured, is less than 10 times was 1 percent of the maturity value. From September 1, it will be 5 percent on net maturity amount i.e. maturity amount minus the premium paid. In most cases, the impact will be more now than previously.
5. Banks to report even small transactions
It is required to furnish a statement of financial transaction (SFT) with a threshold of Rs 50,000 of transactions in a year. Effective September 1, this threshold limit is being removed and even small transactions are going to be reported. With the new initiative of pre-filled income tax forms, this move will help in gathering all income and tax-related information even for smaller transactions.
In Budget 2019, Finance Minister Nirmala Sitharaman had proposed to allow interchangeability between Permanent Account Number (PAN) and Aadhaar with effect from 1 September 2019.
Those who don’t have PAN can quote Aadhaar in transactions that otherwise require quoting of PAN like cash deposit above₹50,000.
