Financial experts and economists may assess the Budget based on complex parameters; however, relief with respect to taxation is the only thing which matters to most of the taxpayers. So, let's take a look at how the Union Budget 2019 is going to impact the lives of taxpayers.
Tax Deduction at Source (TDS) Implications:
1) TDS on payments made by HUF/Individual to professionals and contractors
Currently, liability does not apply to an individual/Hindu undivided family (HUF) to deduct TDS on any payment, which is made to a resident professional or a contractor when it is meant for personal use. Also, if an individual/HUF is working for a business or a profession which has not been subjected to an audit, there is no liability to deduct TDS on such a kind of payment made to a resident, even if the payment is meant for reasons related to business or profession.
As a result of this exemption, a significant amount via payments made by individuals/HUFs related to contractual work/professional service is getting away with the imposition of TDS, resulting in room for tax evasion. To fix this loophole, a proposal has been made to include a new section 194M in the Act to levy TDS at the rate of 5 per cent, if payments made to contractors exceed Rs 50 lakh a year. This amendment will be effective from 1 September 2019. This will help check evasion but may lead to higher burden of compliance for the payer.
2) TDS on cash withdrawals to discourage cash transactions
With an aim to move towards a cashless economy and discourage transactions made via cash, a proposal has been made to include a new section 194N in the Act. With this new inclusion, TDS can be levied at the rate of 2 per cent on cash payments worth more than Rs 1 crore in aggregate made within the year, by a cooperative bank, a banking company, or post office to any individual from an account, which is maintained by the recipient. This amendment will be effective from 1 September 2019. There are several measures already in place to curb cash transactions, but the outcome is debatable. For example, businesses are not allowed to make cash expenses in excess of Rs 10,000.
3) TDS at the point of purchasing an immovable property
Going forward, the term 'consideration for immovable property' under the Section 194-IA of the Act, will include charges related to club membership fee, car parking fee, maintenance fee, advance fee, electricity and water facility fees, or any other fees of similar nature, which are connected to transfer of immovable property. This amendment will be effective from 1 September 2019.
Increase in surcharge:
- For individuals with taxable income between Rs 2 crore and Rs 5 crore, the surcharge has been increased to 25 per cent (previously it was 15 per cent).
- For individuals with taxable income above Rs 5 crore surcharge has been increased to 37 per cent (previously it was 15 per cent).
Taxation simplified for taxpayers:
Taxpayers who do not have PAN can now use their Aadhaar number to file their tax returns.
Tax compliance will be made easier and simpler with the help of technology. Faceless income tax assessment via electronic mode with no human interface will be launched this year. This approach will be introduced in order to eliminate certain undesirable practices followed by tax officials and to reduce the personal interaction involved in the scrutiny process. This process will be launched in a phased manner. Cases will be distributed to various assessment units randomly without disclosing the name, designation, and location of the assessing officer. With this compliance hassles should reduce and assessments will be more transparent, which will help build confidence in the system for taxpayers.
Promoting usage of electric vehicles:
With an aim to promote the usage of electric vehicles, a taxpayer will now get an additional tax deduction of Rs 1.5 lakh under section 80EEB on the interest he or she pays on a loan taken to purchase an electric vehicle, provided the loan must be sanctioned between 1st April 2019 to 31st March 2023 and the taxpayer does not own any other electric vehicle on the date of sanction of loan. Also, customs duty will be exempted on specific parts of electric vehicles. However, this may be too early for a market that is still under development and its impact may only be seen after a couple of years.
A recommendation has been made to the GST Council to reduce the GST rate on electric vehicles from 12 per cent to 5 per cent.
- The customs duty charges on gold, silver, and other precious metals have been revised to 12.5 per cent (previously it was 10 per cent).
- On petrol and diesel, there will be an increase of Rs 1 per litre with respect to Special Additional Excise Duty and Road and Infrastructure Cess.
- To boost the domestic publishing and printing industry, 5% customs duty will be levied on imported books.
TDS of 2 per cent will be imposed on cash withdrawals made in a year exceeding Rs 1 crore via a bank account. This move aims to promote digital payments and discourage business payments which are being made via cash.
Businesses with an annual turnover of more than Rs 50 crore will have to provide customers with low-cost digital modes of payment. Also, a Merchant Discount Rate or no charges will be levied on merchants as well as customers.
Now that the Budget 2019 is out, we will need to wait and see how it is going to affect the financial performance of the country.
(The author is Founder & CEO ClearTax)