Changes in TDS provision via Finance Bill 2019

Budget 2019: Changes in TDS provision- Related to 1. Section 194M : TDS on payment exceeding Rs 50 lakhs to Contractor or Professional by Individual/HUF, Section 194N: TDS on Cash Withdrawal exceeding Rs 1 crore from banks or cooperative bank or post office, Section 194DA: TDS on sum received under life insurance policy and Section 194IA: TDS on payment of transfer of immovable property.

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

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.

2. Section 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)

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

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. So, matter is very clear now whether separate agreement is made for such facilities or not.

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

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 five per cent. on income component of the sum paid by the person.