The 7 changes in income tax laws that come into effect from 1st September

The 7 changes in income tax laws that come into effect from 1st September

Income tax-related changes have been announced in the Budget that generally comes into effect from 1st April. However, since the full Budget for Financial Year 2019-20 has been presented in July this year after the general elections, there are some tax changes that would come into effect from 1st September 2019 

The main changes in tax laws that would come into effect from 1st September 2019 are:

1. TDS on additional payments made when purchasing immovable property 

From 1st September, while buying a property, an individual would have to include the payment made for other services or services such as club membership fee, car parking fee, electricity as well as water facility fee and so on when computing the sum paid for the property for the purpose of deducting TDS

However earlier, the tax was deducted through the buyer from the payment made for the purchase of the property. Though, other payments like club membership fees etc. were generally subtracted from the total consideration towards computing the sum of TDS. The principal reason for this stems from the fact that 'consideration for immovable property' has not defined properly in the Income Tax Act. Remember, the TDS would continue to be deducted at the rate of 1% if the value of the property goes beyond Rs 50 lakh. 

2. TDS on cash withdrawals from a bank account

Cash withdrawals surpassing Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office would invite levy of TDS from 1st September. The move is intended at discouraging large cash transactions as well as also to promoting a less-cash economy.

A new section 194N has been introduced in the Income Tax Act which describes that TDS would be imposed at the rate of 2% in cash withdrawals made from the account 

3. TDS on payments made through individuals and HUFs to contractors and professionals

From 1st September, individuals and HUFs making a payment towards contractors and professionals surpassing Rs 50 lakh in aggregate per annum would also be required to deduct TDS at the rate of 5%. 

This would contain that individuals making payments over this limit for a house renovation, wedding functions or for any additional purpose towards a single professional in a year would be required to deduct tax at the time of making the payment. 

A new section 194N was introduced in the Income Tax Act for this purpose. Though, so as to provide ease of compliance, individuals, and HUFs, deducting the tax would not be required to obtain TAN (tax deduction account number). The new law shall be applied towards all the payments made by the individual whether for personal usage or for business purposes (in case their accounts are not required to be audited.) 

4. TDS on the non-exempt portion of life insurance

If life insurance maturity earnings received by you are taxable in your hands, then TDS shall be deducted at the rate of 5% on the net income portion. The net income portion is explained as the total sum received less of the total sum of the insurance premium paid 

Presently, earnings received at the maturity of a life insurance policy are exempted from tax if the annual premium paid doesn’t surpass 10% (20%in cases of insurance policies sold prior to April 2012) of the amount assured.

5. Banks and FIs could be asked to report even small transactions

Till now banks, as well as other financial institutions, are required to report stated financial transactions if the sum exceeded the threshold limit. In most of the reportable transactions, the limit was Rs 50,000 or more. These transactions were to be reported towards the income tax department through a Statement of Financial Transactions (SFT) required to be filed by all banks and FIs.

Though, the government has broadened the scope of the reporting requirement for such transactions through removing the minimum floor of Rs 50,000, above which financial transactions are requisite to be reported. This was done by means of legislation introduced in the last budget. This means that from 1st September, banks and FIs could be asked to report even small transactions towards the tax department which in turn could use the data to check your ITR.

6. If PAN is not linked with Aadhaar

According to the rules existing prior to changes stated in July Budget 2019, PAN would have become invalid if not linked with Aadhaar through a specified deadline. This would have intended that in case of an individual's PAN becoming invalid; it would be treated as if the individual never had a PAN

However, in the direction of protecting the validity of previous transactions completed using the PAN, Budget 2019 changed the rules such that PAN would become now become inoperative but not invalid if not linked with Aadhaar by the stated deadline. 

However, the government is yet to explain the rules concerning what would happen if the PAN becomes inoperative if not linked with Aadhaar.

7. Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions

Another major announcement made in Budget 2019 was inter-changeability of PAN as well as Aadhaar. However, Aadhaar could be quoted in lieu of PAN only for some prescribed transactions. Though the new law comes into effect from 1st September, the government is yet to inform the certain prescribed transactions.

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eStartIndia Team

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