5 new income tax rules to be effective from September 1

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Published: September 1, 2019 12:11:57 PM

Whether you are buying life insurance, property or making bank transactions, the new rules will have an impact on your income and taxes.

TDS, income tax rules, income tax, life insurance, bank, property,September 1Here are 5 important tax-related changes that will apply under different circumstances and impact your personal finances effective September 1.

Budget 2019 had several tax-related amendments and new rules that one needs to be aware of in order to be on the right side of the law. Whether you are buying life insurance, property or making bank transactions, the new rules will have an impact on your income and taxes. Effective September 1, these new rules will be in place and apply under different circumstances and impact your personal finances.

Here are 5 important tax-related changes effective September 1:

1. TDS on 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 is 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 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 life insurance policy, whenever sum assured, is less than 10 times was 1 per cent of the maturity value. From September 1, it will be 5 per cent on net maturity amount i.e. maturity amount minus the premium paid. In most cases, the impact will be more now than previously.

2. Deduct TDS for a professional job

If you have hired a professional contractor for the construction of your home or a designer, architect or for that matter any professional for personal use, the new Permanent Account Number (PAN) rule asks you to deduct TDS before making the payment and deposit the TDS amount with the government using the PAN of the professional.

Currently, one is not required to deduct TDS on any payment made to a contractor or professional when it is for personal use. Further, if the individual is carrying on business or profession which is not subjected to an audit, there is no obligation for TDS to be deducted, even if the payment is for the purpose of business or profession. However, the government felt that due to this exemption, the substantial amount by way of payments made by individuals in respect of contractual work or for professional service is escaping the levy of TDS, leaving a loophole for possible tax evasion.

To plug this loophole, Budget 2019 had proposed to insert a new section 194M in the Act to provide for levy of TDS at the rate of 5 per cent on the amount paid on account of contractual work or professional fees by an individual if such amount exceeds Rs 50 lakh in a year. This will be effective September 1,2019. However, in order to reduce the compliance burden, it is proposed that such individuals will be able to deposit the tax deducted using their own and the professional’s PAN and will not be required to obtain Tax deduction Account Number (TAN).

3. TDS at the time of purchase of immovable property

Section 194-IA of the Act relates to payment on transfer of certain immovable property other than agricultural land and provides for levy of TDS at the rate of 1 per cent on the amount of consideration paid. Besides the sales consideration, there are payments such as club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee etc. which are incidental to the transfer of the property. From September 1, such charges will be included in the term ‘consideration for immovable property’ and will be subject to TDS.

4. TDS on cash withdrawal

In order to discourage cash transactions and move towards less cash economy, there is a new rule to provide for levy of tax deduction at source (TDS) of 2 per cent on cash payments in excess of Rs 1 crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from one or more accounts maintained with it by the recipient. This new rule takes effect from 1st September, 2019.

The CBDT has clarified that section 194N inserted in the Act, is to come into effect from 1st September, 2019. Hence, any cash withdrawal prior to 1st September, 2019 will not be subjected to the TDS under section 194N of the Act. However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N of the Act shall be counted from 1st April, 2019. Hence, if a person has already withdrawn Rs. 1 crore or more in cash up to 31st August, 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the 2 per cent TDS shall apply on all subsequent cash withdrawals.

5. Banks to report even small transactions

It is required to furnish 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.

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