Amendments to the Finance Bill 2019, at the stage of passing by the Lok Sabha on July 18, have expanded the scope of TDSresponsibility on individuals and HUF further. Budget 2019 had proposed to make it mandatory for individuals and HUFs to deduct TDS from high value payments to contractors and professionals. Now the scope of this TDS will include payment of commission/brokerage too, say EY tax experts.
As per this provision, individuals and HUFs whose accounts are not compulsorily required to be audited for tax purposes, would have to deduct tax at source @ 5% from payments exceeding Rs 50 lakh in aggregate to a single service provider in one financial year. This rule covers payments made to residents.
With Budget 2019 increasing their TDS responsibilities, individuals now have to deduct tax at source in multiple situations. This TDS also has to be deposited with the government within specified time limits and related TDS certificates have to be issued to the deductee(s).
(i) Payments of over Rs 50 lakh to contractors, professionals, brokers/agents
Budget 2019 makes it mandatory for individuals and HUFs to deduct tax at source (TDS) on any payment of Rs 50 lakh per annum to contractors and professionals. This means if the total payments you have made to a single contractor for wedding functions, house renovation or to a single professional during a financial year exceeds Rs 50 lakh, then you have to deduct tax at source (TDS) at 5 percent. The scope of this provision now covers payment of brokerage and commission also, as per amendments in the Finance Bill at the time of enactment.
(ii) Payment of parking charges, maintenance charges etc when buying a house
As proposed in Budget 2019, charges such as club membership fees, car parking fees, electricity and water facility fees, maintenance fee, advance fee etc. will need to be added to the cost of buying a property while determining the amount of tax to be deducted at the time of buying it. This amendment will come into effect from September 1, 2019.
Till now, these charges were excluded while calculating the amount of TDS at the time of making payment for property. Earlier, individuals were required to deduct TDS only on the amount paid for buying a house.
(iii) TDS on monthly rent payments above Rs 50,000
Individuals are already mandatorily required to deduct tax at source from rent payments exceeding Rs 50,000 per month.
Individuals and HUFs who are not required to get their financials audited and are paying rent of more than Rs 50,000 per month have to deduct 5 percent of the rent paid in a financial year as tax and deposit the same in government account. If this TDS is delayed, you have to pay 1% interest for every month of delay in deducting the tax. The penalty is higher at 1.5% per month if the tax has been deducted but not deposited.
While the government's aim is to widen and deepen the tax base through these regulations, it increases the financial accounting liability for individuals affected by these laws.