TDS exemption: Govt may keep some sectors out to 2% deduction rule
New Delhi, Sep 11: New income tax rules came into effect from September 1, 2019. In a bid to discourage cash transactions, the Income Tax department has introduced a new rule wherein 2 percent TDS would be deducted on cash withdrawals of Rs 1 crore or more.
Many small to medium size businesses heavily dependent on cash transactions. Whether it is payment for raw materilas or salaries of daily wage workers, cash is the preffered form to make payments.
Such businesses may take a hit due because of the new TDS rule. With economy already heading toeards a slowdown, the government is likely to exempt certain businesses, particularly those dealing with farmers, from the this 2 percent deduction rule.
A Hindustan Times report quoted officials as saying that the government is considering providing relief to some sectors, which mostly deal in cash.
"Such cases are being reviewed based on the sectoral representations. A considered view will be taken on these matters and some exemption could be provided to businesses, where large amounts of cash payments are inevitable," Hindustan Times report further quoted an official.
In fact, Confederation of All India Traders (CAIT) had strongly opposed this new 2% deduction rule.
Under the newly introduced Section 194N, a 2 per cent TDS on cash withdrawals of Rs 1 crore or more from banks or post offices kicked in on September 1. The aim behind this move is to discourage cash transactions and move towards less cash economy.
Other TDS related changes in tax rules that came into affectt since September-1:
TDS on additional payments made when purchasing immovable property:
If you are buying a property, you will have to include the payment made for other services or amenities such as club membership fee, car parking fee, electricity and water facility fee and so on when computing the amount paid for the property for the purpose of deducting TDS. Earlier, the tax was deducted by the buyer from the payment made during the purchase of the property. However, other payments were usually deducted from the total consideration while computing TDS.
TDS on cash withdrawals:
Budget 2019 proposed that if an individual's Cash withdrawals exceeds Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office will invite levy of 2 per cent TDS from September 1. The move is aimed at discouraging large cash transactions and also to promote a less cash economy. For this, a new section 194N has been inserted in the Income Tax Act which defines that TDS will be levied at the rate of two per cent on cash withdrawals made from the account.
TDS on payments made to contractors and professionals:
From September 1, it has been made mandatory for individuals and HUFs making a payment to contractors and professionals exceeding Rs 50 lakh per year will also be required to deduct TDS at the rate of 5 per cent. For this purpose, a new section 194N has been inserted in the Income Tax Act . TDS on net maturity proceeds of taxable life insurance policy From September 1, if your life insurance maturity proceeds are taxable, then TDS will be deducted at the rate of five per cent on the net income portion. According to Section 10 (10D) of Income Tax Act, maturity proceeds received from a life insurance policy are exempt from capital gains tax. But the same benefit will not be applicable for policies where the annual premium exceeds 10% of the sum assured. Prior to April 2012, this limit was 20%.