Changes in TDS provision via Finance bill,2019 as passed by Lok Sabha and Interim Budget, 2019

1. Sec 194M (new section): TDS on payment exceeding Rs 50 lakhs to Contractor or Professional by Individual/HUF (Applicable w.e.f. 01/09/2019)

Insertion of New Section after Sec 194LD:

(1) Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C, section 194H or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, by way of commission (not being insurance commission referred to in section 194D) or brokerage or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent. of such as income-tax thereon.

Provided that no such deduction under this section shall be made if such sum or, as the case may be, aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees.

(2) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Explanation: For the purposes of this section,

(a) “contract” shall have the meaning assigned to it in clause (iii) of the Explanation to section 194C;

(b) “commission or brokerage” shall have the meaning assigned to it in clause (i) of the Explanation to section 194H;

(c) “professional services” shall have the meaning assigned to it in clause

(a) of the Explanation to section 194J;

(d) “work” shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C.

Explanation:

A new section 194M is proposed to be inserted in the Income Tax Act by the Budget 2019 that provides levy of TDS @ 5% on the sum or aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an Individual or Hindu undivided family, not required to deduct tax at source under sec 194C and 194J of the Act if such sum or aggregate of such sums exceed Rs 50 lakhs in a year. However, in order to reduce the compliance burden, it is proposed that such individuals or HUFs shall be able to deposit the tax deducted using their Permanent Account Number (PAN) and shall not be required to obtain Tax Deduction Account Number (TAN). So, no need to file regular TDS return in such cases.

At present, there is no liability for individual or HUF who are not subjected to audit for any payment made to a resident contractor or professional whether it is for personal use or for the purpose of business or profession. Further any individual or HUF are not liable to deduct TDS on such payment to a resident when it is for personal use. Due to this, substantial amount of payment made by individual or HUF in respect of contractual work or professional service was escaping the levy of TDS, leaving a loophole for tax evasion. To plug this loophole, Sec 194M is inserted.

Some changes have been made Sec 194M while passing finance bill, 2019 in the Lok sabha. The provision is now also applicable to a payment of any sum made to a resident by way of commission (not being commission as per section 194D) or brokerage as defined under section 194H

2. Sec 194N (new section): TDS on Cash Withdrawal exceeding Rs 1 crore from banks or cooperative bank or post office (Applicable w.e.f. 01/09/2019)

Insertion of New Section:

Every person, being,

(i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);

(ii) a co-operative society engaged in carrying on the business of banking; or

(iii) a post office, who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deducts an amount equal to two per cent, of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-section shall apply to any payment made to,

(i) the Government;

(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;

(iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;

(iv) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.

Explanation:

With a view to encourage the cashless economy, it is proposed to insert a new section 194N in the Act to provide for levy of TDS @ 2% on cash payments in excess of Rs. 1 crore in aggregate made during the year, by a banking company or co-operative bank or post office, to any person from an account maintained by the recipient. Exemption from this provision would be granted to certain recipients such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation. Central government would be empowered to grant such exemption to more recipients by the way of Gazette Notification

3. Sec 194IA: TDS on payment of transfer of immovable property (Applicable w.e.f. 01/09/2019)

Amendment:

In section 194-IA of the Income-tax Act, in the Explanation, after clause (a), the following clause shall be inserted with effect from the 1st day of September, 2019, ‘(aa) “consideration for transfer of any immovable property” shall 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;’.

Explanation:

Section 194IA relates to levy of TDS on transfer of certain immovable property other than agriculture land. Presently, the term “Consideration for Immovable Property” is not defined in the act for the purposes of this section. It is noted that in the transaction involving purchase of immovable property, there are other types of payments made besides the sales consideration and the buyer is contractually bound to make such payments to the builder/seller, either under the same agreement or under a different agreement. Some of such payments are those for rights to amenities like club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee etc. Through Budget 2019, the term “Consideration for Immovable Property” is proposed to be defined as 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.

4. Sec 194DA: TDS on sum received under life insurance policy (Applicable w.e.f. 01/09/2019)

Amendment:

In section 194DA of the Income-tax Act, for the words “one per cent”, the words “five per cent on the amount of income comprised therein” shall be substituted with effect from the 1st day of September, 2019.

Explanation:

In section 194DA, it is proposed to make amendment in such a way that TDS liability would be based on income comprised in payment amount instead of entire payment amount, by increased rate of 5% instead of present rate of 1%. It is to be noted that proviso to this section is not changed, so still the threshold limit for the purpose of TDS applicability is based on “amount of such payment” and not “income component” only. At present threshold is less than Rs. 1 Lakhs.

Under section 194DA of the Act, a person is obliged to deduct TDS, if it pays any sum to a resident under a life insurance policy which is not exempt under sec 10 (10D). At present, TDS is required to be deducted @ 1% on such sum at the time of payment. Several concerns have been expressed regarding deducting TDS on the gross amount received. It creates difficulties to assessee who otherwise has to pay tax on the net income (i.e. total sum received less amount of insurance premium paid). From the point of views of tax administration as well, it is preferable to deduct tax on net income so that the income as per TDS return of the deductor can be matched automatically with the return of income filed by the assessee. The person who is paying a sum to a resident under a life insurance policy is aware of the amount of insurance premium paid by the assessee. Hence, it is proposed to provide for tax deduction at source at the rate of 5% on income component of the sum paid by the person.

Full Provision:

Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of 5% on the amount of income comprised therein.

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees.

5. Some Minor Changes in provision of TDS brought by Finance bill,2019

i.  Amendment of section 195

In section 195 of the Income-tax Act, with effect from the 1st day of November, 2019,

(a) in sub-section (2), for the words “to the Assessing Officer to determine, by general or special order”, the words “in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed” shall be substituted;

(b) in sub-section (7), for the words “to the Assessing Officer to determine, by general or special order”, the words “in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed” shall be substituted

ii. Amendment of section 197

 In section 197 of the Income-tax Act, in sub-section (1), for the figures and letters “194LBC”, the figures and letters “194LBC, 194M” shall be substituted with effect from the 1st day of September, 2019

iii. Amendment of section 198

In section 198 of the Income-tax Act, after the first proviso, the following proviso shall be inserted with effect from the 1st day of September, 2019, namely:

‘‘Provided further that the sum deducted in accordance with the provisions of section 194N for the purpose of computing the income of an assessee, shall be deemed to be income received.’’.

Explanation:

Section 198 states that all sums deducted (TDS) shall be deemed to be income received by the assessee. The TDS deducted under section 194N already forms part of the section 198, and hence, insertion of such a proviso would not be the intention of the Legislature.

The proviso is supposed to restrict the scope of section 198 and thus, a clarification is required that the TDS under section 194N shall not be deemed to be income received by the assessee.

iv. Amendment of section 201

In section 201 of the Income-tax Act, with effect from the 1st day of September, 2019,

(a) in sub-section (1), in the first proviso, for the word “resident” wherever it occurs, the word “payee” shall be substituted;

(b) in sub-section (1A), in the proviso, for the word “resident” wherever it occurs, the word “payee” shall be substituted;

(c) in sub-section (3), after the words “credit is given”, the words, brackets and figures “or two years from the end of the financial year in which the correction statement is delivered under the proviso to sub-section (3) of section 200, whichever is later” shall be inserted.

v. Substitution of section 206A: Furnishing of statement in respect of payment of any income to residents without deduction of tax. For section 206A of the Income-tax Act, the following section shall be substituted with effect from the 1st day of September, 2019, namely:

(1) Any banking company or co-operative society or public company referred to in the proviso to clause (i) of sub-section (3) of section 194A responsible for paying to a resident any income not exceeding forty thousand rupees, where the payer is a banking company or a co-operative society, and five thousand rupees in any other case by way of interest (other than interest on securities), shall prepare such statement in such form, containing such particulars, for such period, verified in such manner and within such time, as may be prescribed, and deliver or cause to be delivered the said statement to the prescribed income-tax authority or to the person authorised by such authority.

(2) The Board may require any person, other than a person mentioned in subsection (1), responsible for paying to a resident any income liable for deduction of tax at source under Chapter XVII, to prepare such statement in such form, containing such particulars, for such period, verified in such manner and within such time, as may be prescribed, and deliver or cause to be delivered the said statement to the income-tax authority or the authorised person referred to in sub-section (1).

(3) The person responsible for paying to a resident any income referred to in sub-section (1) or sub-section (2) may also deliver to the income-tax authority referred to in sub-section (1), a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under the said sub-sections in such form and verified in such manner, as may be prescribed”.

6. Sec 194A: Change of threshold limit from Rs 10000 to Rs 40000/Rs 50000 via Interim Budget, 2019

Amendment:

In section 194A of the Income-tax Act, in sub-section (3), in clause (i), for the words “ten thousand” wherever they occur, the words “forty thousand” shall be substituted.

Full provision:

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.

Explanation: For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) The provisions of sub-section (1) shall not apply—

 (i)  where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed—

(a) Rs 40000, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act); [For Senior Citizen, Threshold Limit is Rs 50000]

(b) Rs 40000, where the payer is a co-operative society engaged in carrying on the business of banking; [For Senior Citizen, Threshold Limit is Rs 50000]

(c) Rs 40000, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; [For Senior Citizen, Threshold Limit is Rs 50000] and

(d)  five thousand rupees in any other case:

Provided that in respect of the income credited or paid in respect of—

(a)  time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or

(b)  time deposits with a co-operative society engaged in carrying on the business of banking;

(c)  deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36;

the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be.

Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions:

Provided also that in case of payee being a senior citizen, the provisions of sub-clause (a), sub-clause (b), and sub-clause (c) shall have effect as if for the words forty thousand rupees”, the words “fifty thousand rupees” had been substituted.

Explanation: For the purposes of this clause, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year;

(iii)  to such income credited or paid to—

(a)  any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or

(b)  any financial corporation established by or under a Central, State or Provincial Act, or

(c)  the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or

(d)  the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or

(e)  any company or co-operative society carrying on the business of insurance, or

(f)  such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;

(iv)  to such income credited or paid by a firm to a partner of the firm;

(v)  to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society;

Explanation: For the purposes of this clause, “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(vi)  to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette;

(vii)  to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);

(viia) to such income credited or paid in respect of –

(a)  deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;

(b)  deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;

(viii)  to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);

(ix)  to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;

(ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;

(x)  to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company or scheduled bank;

(xi)  to any income by way of interest referred to in clause (23FC) of section 10.

Explanation 1: For the purposes of clauses (i), (vii) and (viia), “time deposits” means deposits (including recurring deposits) repayable on the expiry of fixed periods.

(4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

7. Sec 194I: Change of threshold limit from Rs 180000 to Rs 240000 via Interim Budget, 2019

Amendment:

In section 194-I of the Income-tax Act, in the first proviso, for the words “one hundred and eighty thousand rupees”, the words “two hundred and forty thousand rupees” shall be substituted.

Full Provision:

Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of—

(a)  two per cent for the use of any machinery or plant or equipment; and

(b)  ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed Rs 240000.

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.

Provided also that no deduction shall be made under this section where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust.

Explanation: For the purposes of this section,

(i)  “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,

(a)  land; or

(b)  building (including factory building); or

(c)  land appurtenant to a building (including factory building); or

(d)  machinery; or

(e)  plant; or

(f)  equipment; or

(g)  furniture; or

(h)  fittings,

whether or not any or all of the above are owned by the payee;

(ii)  where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Also Read below Post:-

Budget 2019: Detailed Analysis of Changes in Income Tax, GST, Excise

Download Finance Bill 2019-2020 as presented in Lok Sabha

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7 Comments

  1. vswami says:

    A slew of changes-

    i) Insertion of sec 194M, …
    X 194 C- ‘works contract’ X GST levy on deemed ‘works cntract’- changes with a hidden landmine ?

    II) Amendment of section 197 –
    “In section 197 of the Income-tax Act, in sub-section (1), for the figures and letters “194LBC”, the figures and letters “194LBC, 194M” shall be substituted with effect from the 1st day of September, 2019”
    Posers:
    a) why not from april 1, 2020 ?
    b) why should not also sec.194 IA have been likewise inserted ?
    See the 2 Articles on this website explaining why the lacunae needs to be plugged in !

  2. vswami says:

    ADMN. / SG Team
    The ‘érror post’ has been displayed; but not the original comment as posted to which it has reference – no meaning but is cnfusing ?!

    1. TG Team says:

      Dear Sir,

      We have approved all comments. It is possible that your comment landed in SPAM comments and get deleted. You are requested to post your comment once again.

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