Amendments to the TDS provisions by Finance Act 2019

Amendments to the TDS provisions by Finance Act 2019

The Budget 2019 has explicitly proposed several amendments in order to widen the tax base and bring within it’s purview a greater number of taxpayers with a view to minimize tax evasions. Similarly, certain amendments have been brought about in order to bring a relief to taxpayers. These amendments are aimed at bringing greater transparency and simplify tax administration.

These amendments listed here below for quick reference:

  1. Tax Deduction at Source (TDS) on payment by Individual/HUF to contractors and professionals (Section 194C / 194J)

Under the existing provisions, an individual / HUF were not liable to deduct TDS under s. 194C/ 194J when :

  • Such payments were for personal use ;
  • The individual / HUF was carrying on business / profession which was not subject to audit under s. 44AB of the Act.

Thus, substantial payments were made in respect of contractual work or professional services escaping the levy of TDS, thus leaving a loophole for possible tax evasion.

To plug in this loophole, s.194M has been inserted wherein, an individual or HUF making payments in respect of contractual work or professional services (i.e under s. 194C and 194J) in excess of INR 50 lacs in a year are required to deduct TDS. However, in order to reduce the compliance burden, such individual’s and HUF shall deposit the TDS using their PAN and need not obtain their PAN.

This amendment takes effect from 1st September 2019.

  1. TDS on purchase of Immovable Property (Section 194IA)

Under s. 194IA of the Act, TDS at the rate of 1% on the amount of consideration paid or credited is supposed to be deducted on transfer of certain immovable property other than agricultural land. At present, the term “consideration for immovable property” is not defined for the purpose of this section. In the transaction involving purchase of immovable property, certain other payments like club membership fees, car parking fee, electricity and water facility fees are made besides the sale consideration and the buyer is contractually bound to make such payments to the seller.

Accordingly, it is proposed to amend Explanation to 194IA and the term “consideration for immovable property” shall include all charges of the nature of club membership fees, car parking fees, electricity fees and any other charges of similar nature which are incidental to the transfer of such property.

This amendment takes place w.e.f 1st September 2019.

 

  1. TDS on Cash Withdrawal to discourage cash transactions (Section 194N)

In order to discourage cash transactions and move towards a “less cash economy”, s. 194N has been inserted to provide levy of TDS at 2% on cash payments in excess of INR 1 crore in aggregate made during the year, by a banking company or a co-operative bank or post office, to any person from an account maintained by the recipient.

 

However certain recipients – Government, banking company’s, co-operative societies engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in handling of substantial amounts of cash as a part of business operations are exempt from the application of this provision.

 

This amendment takes place w.e.f 1st September 2019.

 

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

Under s. 194DA, a person is required to deduct tax at source, if it pays any sum to a resident under life insurance policy which is not exempt under s. 10(10D). At present TDS is deductible at 1%. Several concerns had been expressed that deducting TDS on gross amount created difficulties to an assesse who otherwise had to pay taxes on net income.

 

Keeping this in mind, TDS shall be deducted at 5% on the income component of the assesse (i.e after deducting the amount of insurance premium paid by him from the total sum received).

 

This amendment takes place w.e.f 1st September 2019.

 

  1. Increase in threshold limit for deduction of TDS on rental income (Section 194I)

The threshold limit of deduction of TDS on rent payments to residents for use of land and building (including factory building) or any machinery or plant or equipment or furniture and fittings has been increased from INR 1,80,000/- to INR 2,40,000/-

 

  1. Increase in threshold limit for deduction of TDS on interest income (Section 194A)

Banks, co-operative bank and post office are not required to deduct any tax at source at the time of payment or credit of interest to the account of the payee if the aggregate amount of interest payable during the financial year does not exceed INR 40,000/-. Earlier the limit was INR 10,000/-