7 Changes in Income Tax Laws come into effect from September 1

Generally Income tax related changes announced in the Budget usually come into effect from April 1.But in the FY 2019-20 budgets was presented in July this year after the general elections, there are certain tax changes that will come into effect from September 1, 2019. 

·         TDS on additional payments made when purchasing immovable property

From September 1, 2019, while 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. The TDS will continue to be deducted at the rate of one . 

·         TDS on cash withdrawals from bank account

Cash withdrawals exceeding 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 TDS from September 1. The move is aimed at discouraging large cash transactions and also to promote a less cash economy. 

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 by individuals and HUFs to contractors and professionals

From September 1, individuals and HUFs making a payment to contractors and professionals exceeding Rs 50 lakh in aggregate per annum will also be required to deduct TDS at the rate of 5 per cent. 

This would mean that individuals making payments over this limit for house renovation, wedding functions or for any other purpose to a single professional in a year would be required to deduct tax at the time of making the payment. 

A new section 194N has been inserted in the Income Tax Act for this purpose. However, in order to provide ease of compliance, individuals and HUFs, deducting the tax will not be required to obtain TAN (tax deduction account number). The new law will be applicable to all the payments made by the individual whether for personal use or for business purposes (in case their accounts are not required to be audited.) 

·         TDS on non-exempt portion of life insurance

If life insurance maturity proceeds received by you are taxable in your hands, then TDS will be deducted at the rate of 5 per cent on the net income portion. The net income portion is defined as the total sum received less of total amount of insurance premium paid. 

Currently, proceeds received at the maturity of a life insurance policy are exempted from tax if the annual premium paid does not exceed 10 per cent (20 per cent in case of insurance policies sold prior to April 2012) of the sum assured. 

"If the maturity amount received by an individual are taxable, then TDS will be deducted only on the net income portion and not on the total amount paid. Remember TDS will be deducted at the rate of 5 per cent in case the taxable proceeds, i.e., net income portion exceeds Rs 1 lakh. Prior to this TDS was deducted at the rate of 1 per cent on the total amount paid." 

·         Banks and FIs can be asked to report even small transactions

Till now banks and other financial institutions are required to report specified financial transactions if the amount exceeded the threshold limit. In most of the reportable transactions, the limit has been Rs 50,000 or more. These transactions were to be reported to the income tax department through a Statement of Financial Transactions (SFT) required to be filed by all banks and FIs. 

However, the government has widened the scope of reporting requirement for such transactions by removing the minimum floor of Rs 50,000, above which financial transactions are required to be reported. This has been done via legislation introduced in the last budget. This means that from September 1, banks and FIs can be asked to report even small transactions to the tax department which in turn can use the data to check your ITR. 

Wadhwa adds, "Previously, the tax department could ask for a report of transactions of individuals equal to or more than Rs 50,000. However, this floor of Rs 50,000 has been removed in the budget of July 2019 enabling the income tax department to ask for information about small transactions as well. Thus, the CBDT can now require reporting of transaction even if the value of such transaction is nominal." 

·         If PAN is not linked with Aadhaar

As per rules existing prior to changes announced in July Budget 2019 PAN would have become invalid if not linked with Aadhaar by a specified deadline. This would have meant that in case of a person's PAN becoming invalid, it would be treated as if the person never had a PAN. 

However, to protect the validity of previous transactions done using the PAN, Budget 2019 changed the rules such that PAN will become now become inoperative but not invalid if not linked with Aadhaar by the specified deadline. 

·         Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions

Another important announcement in Budget 2019 was inter-changeability of PAN and Aadhaar. "However, Aadhaar can be quoted in lieu of PAN only for certain prescribed transactions. Though the new law comes into effect from September 1, the government is yet to notify the certain prescribed transactions.’’

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Big bank mergers: Government turns ten PSBs into four

NEW DELHI: India announced an extensive consolidation of state-owned banks that will see 10 of them being merged to form four bigger lenders to strengthen a sector struggling with a bad-loan cleanup and aimed at creating lenders of global scale that can support the economy’s surge to $5 trillion by 2024. The government also announced governance reforms to improve their health. 
“We want to create next-generation banks,” finance minister Nirmala Sitharaman told reporters on Friday. “You need big banks with enhanced capacity to increase credit… You need banks with strong national presence and global reach.” 

Bank unions, however, opposed the mega merger move saying it lacks any rationale. 

This was the latest in a series of announcements by the government since last

week as it seeks to stimulate demand and revive the economy. In a separate announcement, the government said growth had slumped to a six-year low in the quarter to June. 

The latest consolidation move will slash the number of state-owned lenders to 12 from 27 in 2017, Sitharaman said, highlighting the banking reforms undertaken by the Narenda Modi government that have also included significant tidying-up of balance sheets. 

“Today’s announcements on bank mergers is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer,” said State Bank of India chairman Rajnish Kumar. 

Among the governance changes, the move to have a separate mechanism for sanctioning and monitoring of big loans will ring-fence the banks against potential frauds. Further, the decision to empower bank boards and operational flexibility in hiring from the market will prioritise robust risk-management practices in decision making. 

‘No Disruption for Customers’

Punjab National BankNSE -0.23 % will absorb Oriental Bank of Commerce and United Bank of India to form the nation's second-largest state-owned lender with combined business of Rs 17.94 lakh crore, overtaking Bank of Baroda with Rs 16.13 lakh crore. SBI leads state-owned banks with business of Rs 52.05 lakh crore. 

 

Canara Bank will absorb Syndicate Bank, giving it a combined business of Rs 15.2 lakh crore and ranking it at fourth, while Union Bank of India will amalgamate with Andhra BankNSE 7.65 % and Corporation Bank (Rs 14.59 lakh crore, fifth). Indian Bank will absorb Allahabad BankNSE 4.44 % (Rs 8.08 lakh crore). This will make balance sheets stronger, giving them greater capacity to lend, according to the government. 

Managing directors of these banks were informed about the merger decision earlier in the day by the department of financial services (DFS) even though discussions had been going on for some time, said a senior banking industry official. 

SBI took over its associate banks in 2017 and Bank of Baroda absorbed Vijaya Bank and Dena Bank this year. The top six will now have 82% of the lending business in public sector banking and 52% in commercial sector lending. Finance secretary Kumar said the consolidation will be smooth. 

Bank unions opposed the mega merger of 10 state-run banks into four saying the move is bereft of logic and lacks any rationale. "The proposals which the government has moved are unmindful since it has no logic or rationale. Neither, it is the case that a weak bank is merged with a strong one nor geographically compatible banks are being merged," All India Bank Employees Association said in a statement. 
 

Recapitalisation and Governance Reforms The consolidation exercise will be accompanied by a Rs 55,250 crore capital infusion in public sector lenders as also governance reforms. Punjab and Sind Bank will get Rs 7,050 crore; Central Bank of India will get Rs 3,300 crore; UCO BankNSE 7.09 % will get Rs 2,100 crore, PNB will get Rs 1,600 crore, and Bank of Baroda will get Rs 600 crore. Kumar said bank boards will apprise the government of capital requirements and numbers finalised. 

As part of the governance reforms, Sitharaman said non-official directors at state-run lenders will have to function like independent directors on company boards. Boards will be peer reviewed. The number of executive directors has been raised to four and boards have been given the mandate to reduce and rationalise board committees. Public sector banks will also be able to appoint a chief risk offer at market rates. 

The finance minister also gave a report card on the steps announced earlier by the government, with recoveries rising to Rs 1.21 lakh crore in FY19 from Rs 61,930 crore in FY17 and provision coverage ratio being at the highest in seven years. She said profitable state-run lenders had gone up to 14 as against two in FY18.

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Deduction Under Section-80C

80C deduction are the most popular Income Tax Deductions. The 80C deduction limit for AY 2018-19, 2019-20 and 2020-21 is ? 1,50,000. The various options of investments and payments that qualify for deduction under this section are:

Investments in Tax Saving FDs

Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh.

Eligibility : Can be opened by Resident Indian individuals.

Liquidity: Fixed Deposits have lock-in period of 5 years.

Rate of Interest : FD interest rate across different banks ranges from 5.5% to 7.75%

Investment Limit: Minimum investment limit is Rs 1000.

Tax Treatment : Interest earned in taxable.

Investments in PPF (Public Provident Fund)

PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.

Eligibility : Can be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account.

Liquidity: PPF account have lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.

Rate of Interest : Current interest rate is 8.0% p.a.

Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.

Tax Treatment : Interest earned is tax-free.

Investments in EPF (Employee Provident Fund)

EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognised provident funds.

Eligibility : Can be opened by employee with basic salary greater than 15,000 /month

Liquidity: Can withdraw PF balance after 2 months of leaving job and does not take up employment within two months with an employer covered by PF Act

Rate of Interest : Interest rate on the EPF is 8.55%.

Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.

Tax Treatment :Entire PF balance (including interest) is tax-free, if withdrawn after continuous service of 5 years

Investments in NPS (National Pension System)

The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C

Eligibility : Can be opened by every Indian citizen between the age of 18 and 60

Liquidity: Partial withdrawals are allowed after 15 years but under special conditions

Rate of Returns : Returns rate on the NPS varies between 12% – 14%

Investment Limit: No limit on maximum contribution

Tax Treatment : Employer contributions are tax-free

Investments in ULIP (Unit linked Insurance Plans)

ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C

Eligibility : An investor can buy ULIP for self or spouse or child

Liquidity: Interest rate varies as it is market linked

Rate of Returns : Return rate on the ULIP varies between 12% – 14%

Investment Limit: No limit on maximum contribution

Tax Treatment : Investment and withdrawals & maturity amount are tax-free

Investments in Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana :Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country

Eligibility : Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years

Liquidity: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years

Rate of Interest : Interest rate on Sukanya Samriddhi Yojana is 8.5%

Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year

Tax Treatment : Investment and withdrawals & maturity amount are tax-free

 Senior Citizens Savings Scheme: 

Investments in Senior Citizens Saving Scheme, which as the name would suggest is suitable for senior citizens, qualify for deduction under Section 80C of the Income Tax Act. This scheme has tenure of 5 years. To participate in the Senior Citizens Saving Scheme, an individual has to be at least 60 years of age. Those who have taken VRS (voluntary retirement scheme) can opt for it after the age of 55.

 Stamp Duty and Registration Charges: 

 While buying a property, one of the largest expenses you will have to bear is the stamp duty and registration charges. To give taxpayers some relief, the government has included these expenses under Section 80C of the Income Tax Act, 1961. The deduction can only be claimed once the property construction is complete and you have legal possession of the house.

 Equity Linked Saving Scheme:

 Investments in equity linked savings scheme qualify for tax deduction under section 80C of the Income Tax Act Now, an essential point to be noted about equity linked savings scheme is that they have a mandatory lock-in period of three years from the date of investment. If you are considering investing in this scheme, make sure to invest for longer periods like five to seven years as they are equity schemes. Equity schemes are an ideal option for wealth creation over a long period.

Payments in Children’s tution fees

The tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs 1.5 lakh. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.

Deferred Annuity Plan

You can claim deduction in respect of payment made by you under Deferred Annuity Plan. This annuity may be in your name, your spouse's name or in the name of any of your child. But to claim deduction under this annuity plan, there should be no provision of receiving cash in lieu of annuity.
And, if you're a government employee and any sum is deducted from your salary under deferred annuity plan, then deduction is restricted to only 1/5th of your salary.

Principal Repayment of Housing Loan

You can claim the deduction of principal repayment of your housing loan taken for purchase or construction of residential house property. Deduction can also be availed in respect of stamp duty charges, registration fee and other expenses paid for purchase of your house. This deduction is available for both individuals and HUF.

But keep in mind that if you sell/transfer such house property in respect of which such deduction was taken before expiry of 5 years from the end of financial year in which possession was taken, then the deduction availed in the earlier years will be taxable for you in that year.

Example: If you have taken home loan of Rs. 50,000 /- at the rate of interest is 10%, the bifurcation of installment is as follows:

Year	Financial Year	Installment	Interest	Principal paid
1	2015-16	Rs. 15,773.54	Rs. 5,000.00	Rs. 10,773.54
2	2016-17	Rs. 15,773.54	Rs. 3,922.65	Rs. 11,850.89
3	2017-18	Rs. 15,773.54	Rs. 2,737.56	Rs. 13,035.98
4	2018-19	Rs. 15,773.54	Rs. 1,433.96	Rs. 14,339.58

• Others

1.     Subscription to any deposit scheme/pension fund of National Housing Bank (NHB)

2.     Subscription to bonds issued by National Bank for Agriculture and Rural Development (NABARD)

3.     Subscription to notified deposit scheme of:

4.     Public Sector Housing Finance Company

5.     Housing Development Authority of cities, towns and villages

6.     Contribution towards annuity plans of LIC like Jeevan Dhara, Jeevan Akshay etc. or any other insurer as approved by Central Government.

7.     Subscription to equity shares or debentures of Public Company or any Public financial institution forming part of any eligible issue of capital approved by Board where proceeds are utilized for infrastructure company.

8.     Stamp duty, registration fee incurred for the purpose of transfer of such house property to the assessee.

For more details about this deduction Read More.

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