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Tax Planning 2020: Income Tax Rules Changes 2019 and how taxpayers will be affected

Income Tax Rules Changes 2019

Income Tax Rule Changes 2019: The year 2019 brought several good news for income taxpayers as the government introduced multiple changes in the income tax law. As many as 70 amendments in the Income Tax Act were made by the Finance Act 2019. These amendments were either in the form of inserting new sections in the existing law or by amending the existing provisions. From making income up to Rs 5 lakh effectively tax-free to tax exemption to withdrawal form NPS, the major changes brought in by the government in the year 2019 are going to have a long-lasting impact on pockets of taxpayers. CS Sakshi Agarwal, chief mentor and leader at Sameer Mittal & Associates LLP, has explained key income tax rule changes of the year and how they will impact taxpayers in 2020. You can use the following details to make your tax plan accordingly:

Income Tax Rates

Rates of Income Tax of AY 2019‐20 was proposed to be continued for AY 2020‐21 but surcharge rate was increased for Individual, HUF, AOP, BOI, Pvt. Trust and AJP. Initially, a surcharge of 15 per cent was levied on the income of individuals earning over Rs 1 crore, and 10 per cent on income of individuals earning between Rs 50 lakh and Rs 1 crore. Now the surcharge limit has been increased for individuals earning income of more than Rs. 2 crore. The new structure of surcharge is as follows :

  • 10% (for income of Rs 50 lakh to Rs 1 crore),
  • 15% (for income of Rs 1 crore to Rs 2 crore),
  • 25% (for income of Rs 2 crores to Rs 5 crore) and
  • 37% (for income exceeding Rs 5 crore)

So, the effective tax rate for Income above Rs 2 Crore but less than Rs 5 Crore and Income above Rs 5 crore will be 39% and 42.74%(Tax rate + Surcharge + Cess).

New TDS Provisions

In the Budget 2019, two new TDS provisions (Section 194N and Section 194M) were introduced. These are applicable from 1st September 2019.

1. TDS on cash withdrawal to discourage cash transactions [Section 194N]

In order to curb the cash transactions, from September onwards the banks, cooperative banks or post offices are liable to deduct 2% TDS, on cash payment exceeding of Rs 1 Crore in aggregate during the financial year, to any person from an account maintained by the recipient.

2. TDS on Payment by Individual/HUF to Contactors or Professionals [Section 194M]

As per section 194M, any individual or a HUF, which is not subject to tax audit and is not required to deduct TDS under section 194C, section 194H or section 194J and is making payment to any resident for carrying out any work, commission, brokerage or fees for professional service shall deduct a sum equal to 5% as TDS and deposit the amount with Government. The liability to deduct TDS will arise when the amount paid in one go or in multiple instalments exceeds Rs 50 lakh.