Changes In The Income Tax Act: Facts To Know

Budget 2019 brought about several changes related to the existing Income Tax Act, 1961. Here are the proposed changes applicable since September 1, 2019.

Interchangeability of Aadhaar and PAN   

Every person who has been allotted a PAN, and has linked their Aadhaar number with PAN as per section 139AA, may furnish their Aadhaar number in lieu of PAN for all the transactions where quoting of PAN is mandatory as per Income Tax Act, 1961.

No need to apply for PAN if Aadhaar number is furnished 

Rahul Singh, Manager, Taxmann, said, “A person, who has not been allotted a PAN, shall be deemed to have applied for the same if he has intimated his Aadhaar number in lieu of PAN. Further, a person not possessing PAN can apply for it by intimating his Aadhaar only and no additional document shall be required to be submitted by him.”

Two per cent TDS on cash withdrawal 

The Finance Act, 2019 has inserted a new section 194N in the Income Tax Act, 1961 to provide for deduction of tax at source (TDS) at the rate 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.

“It must be noted that any cash withdrawal prior to September 1, 2019 will not be subject to the TDS under section 194N. However, the threshold of Rs 1 crore for calculation of amount of cash withdrawal for triggering deduction under section 194N shall be counted from April 1, 2019,” Singh added.

For example, say A has savings and current account with a bank. He withdrew Rs 110 lakh from both the accounts till August 31, 2019. Now, suppose he withdrew Rs 20 lakh on September 2, 2019. TDS at 2 per cent shall be levied on Rs 20 lakh only, Singh explained.

Higher TDS from payment in respect of life insurance policy 

As per Section 194DA, any payment in respect of life insurance policy to a resident person shall be subject to TDS at the rate of 1 per cent. The tax shall be deducted under this provision at the time of payment on the gross amount, if sum payable exceeds Rs 1 lakh.

“From September 1, 2019, the deductor is now required to deduct tax only on the income component comprised in the insurance pay-out at the rate of 5 per cent (in contrast to 1 per cent on the gross amount). However, the provisions of Section 194DA does not prescribe any mechanism for computation of income component in case of insurance proceeds,” Singh said.

Individuals and HUFs (not liable for tax audit) shall deduct tax from sum payable to resident contractor, brokers or professionals 

As per the existing sections 194C, 194H and 194J, no tax is required to be deducted by an individual or HUF from payment made to contractor, brokers or professional if such individual or HUF is not subject to tax audit.

“Thus, a new Section 194M has been inserted in the Income Tax Act to provide for deduction of tax at source, at the rate of 5 per cent on the sum paid or credited, to a resident, during a year on account of contractual work, commission (not being insurance commission referred to in Section 194D), brokerage or professional fees, by an individual or a HUF, if aggregate of such sum exceeds Rs 50 lakh in a year,” Singh added. 

However, in order to reduce the compliance burden, it has been provided that such individuals or HUFs can deposit the tax deducted using their PAN and shall not be required to obtain Tax Deduction and Collection Account Number (TAN). 

Section 194-IA TDS to be deducted on gross amount including incidental charges 

As per Section 194-IA, any person (buyer) who is responsible for making payment of sales consideration in respect of purchasing an immovable property shall deduct tax therefrom. Tax is deductible under this provision if amount of ‘consideration’ paid or payable for transfer of immovable property is Rs 50 lakh or more.

The Finance Act, 2019 has inserted an explanation in Section 194-IA to provide that the term ‘consideration’ shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.

PAN will be inoperative if not linked with Aadhaar 

In order to protect the validity of transactions carried out previously through PAN, the Finance Act, 2019, has amended the provision to Section 139AA(2) to provide that if a person fails to intimate the Aadhaar number, the PAN allotted to such person shall be made inoperative (without declaring it invalid) in the prescribed manner. “The Central Board of Direct Taxes (CBDT) is yet to notify the prescribed manner as the last date to link PAN with Aadhaar is September 30, 2019,” Singh said.