How Income Tax Rules Are Affecting TDS, You Pay on Services

Initiated on 1 September, the Budget 2019 is all set to lead the way in tax proceedings. Amendments introduced in the 2019 Budget by Finance Minister Nirmala Sitharaman will have many effects but what strikes directly to the common man is Tax Deducted at Source (TDS).

Below are the four major amendments related to TDS (along with their highlights) enrolled in Budget 2019:

Section 194N – TDS on Cash Withdrawals

Major Highlights:

The Law – The provision says that cash withdrawals of Rs 1 Crore or above from any financial institution during a particular FY will attract TDS. The law demotivates the ‘ Heavy Cash Transactions’ in the market and makes India a cashless or digitized economy. To be noted, CBDT said that if someone has already withdrawn Rs. 1 Crore till 31 August, the amount will be exempt from TDS. However since the threshold of Rs 1 crore is with respect to the previous year, the calculation of cash withdrawal for deduction shall be counted from April 1, 2019.

Also, the financial institutions will compute TDS based on the accounts in their bank branches. For Instance: A person has 2 accounts in different banks. Each bank is liable to compute only 1 account. That means he can withdraw up to 2 Crore in an FY without paying TDS.

Threshold Limit For TDS Deduction – TDS Section 194N on Cash Withdrawals of Rs 1 Crore or more.

TDS Deducted – 2% TDS will be deducted on withdrawals above 1 Crore in an FY.

Section 194-IA – TDS on Facilities with Immovable Property

Major Highlights

The Law – The provision says that the amenities given along with the property will now invite a TDS deduction. Amenities such as club membership, car parking, water and electricity facility, maintenance fees or any other charges will now come under the parameters of TDS deduction.

Threshold Limit For TDS Deduction – The rule is applicable to the property with a value of Rs. 50 Lakhs or more. This means if you buy a property which is worth Rs. 50 Lakhs and you have given around 5 Lakhs for basic amenities then an extra Rs. 55,000 is payable as TDS (1% of 55 Lakhs).

TDS Deducted – 1% TDS is deducted from the basic amenities offered along with the property.

Section 194M – TDS on Fees for Contracts or Professionals

Major Highlights

The Law – The provision calls for a TDS deduction on the amount paid by an individual or Hindu Undivided Family (HUF) for a contractor to a professional. A certain threshold limit is decided for the same. The law is brought into practice to eradicate Tax Evasion as earlier payments on contracts or professional fees escaped tax. Please note: TDS will be deducted at the time of payment, even if the contract existed before.

Read More: A Brief Study of Newly Added TDS Section 194M

Contract work includes advertising, broadcasting, transport of goods and travel facilities for passengers by any mode of transportation (other than railways), and manufacturing or supplying a customized product by using material purchased from the customer.

Threshold Limit For TDS Deduction – If the amount paid exceeds Rs 50 Lakhs in an FY.

TDS Deducted – 5% of the amount paid for a contract or fees for a professional. If the deductee (payment receiver) does not have a PAN then the deductor (payment giver) is liable to deduct 20% as TDS.

TDS on Insurance Proceeds

Major Highlights

The Law – Sarkaar has increased the percentage of TDS on Life Insurance maturity proceeds received. If the monthly premium paid is more than 10% of the total sum assured (policy issued after 1 April 2012) or more than 20% of the total sum assured (policy issued after 1 April 2013), the total maturity amount will be eligible for tax deductions. Except for the conditions of a person’s disability or any of the diseases specified under Sections 80U and 80DDB, where the amount received on maturity is exempt from tax.

Threshold Limit For TDS Deduction – Any taxable amount received on Insurance Maturity.

TDS Deducted – 5% TDS will be deducted from the total amount received on maturity. Which was earlier 1%.