New TDS provisions to hit cash flow of individual taxpayers : The Tribune India

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New TDS provisions to hit cash flow of individual taxpayers

Though the proposed Budget does not have much to offer by way of relief to the individual taxpayers except raise in the limit of deduction for mediclaim, it has various provisions which will affect your cash flow as TDS provisions are proposed to be extended in many areas.

New TDS provisions to hit cash flow of individual taxpayers

The limit of Rs 10,000 for TDS shall be calculated with reference to the bank as a whole and not for each branch.



Balwant Jain

Though the proposed Budget does not have much to offer by way of relief to the individual taxpayers except raise in the limit of deduction for mediclaim, it has various provisions which will affect your cash flow as TDS provisions are proposed to be extended in many areas. Let us discuss these in detail.

Deduction on interest from various branches of the same bank

At present, the banks and post office deduct tax on interest on fixed deposit in case the interest for the year is likely to exceed Rs 10,000. The above limit of Rs 10,000 is calculated with reference to each of the branch separately and not the bank taken as a whole.

Due to this provision, a lot of people are making fixed deposits with the same bank but across various branches so as to ensure that the interest from each of the branch does not exceed Rs 10,000 and thus getting interest without TDS. This facility of restricting the limit of Rs 10,000 was kept due to administrative inconvenience and infeasibility involved with calculating limit for the bank as a whole.

Since almost all the banks have moved to core banking solution and the requirement to furnish PAN has become mandatory, now it is no longer difficult for the bank as a whole to find out the persons who will earn interest more than Rs 10,000 in a year. So the Finance Minister has proposed that the limit of Rs 10,000 for TDS shall be calculated with reference to the bank as a whole and not for each branch in case the bank has implemented core banking solution.

Deduction of TDS on interest credited by coop banks

A cooperative society is not required to deduct TDS on the interest credited to its members. Many cooperative banks were able to garner a big chunk of deposits by making the depositors a member by allotting them nominal numbers of shares. A lot of people have been taking benefit of this provision by putting their fixed deposits with cooperative bank after buying nominal shares. This was helping a lot of people getting interest without the same being subjected to tax, there is a proposal to withdraw the exemption hitherto enjoyed by the cooperative banks. Now even cooperative banks also will have to deduct TDS on interest credited to fixed deposits of their members.

Interest on recurring deposits

At present, no tax is deducted on the interest credited on the recurring deposit (RD) account irrespective of the interest being credited.

Since RDs are also like fixed deposits the Finance Minister proposes to apply TDS provisions to interest on RD accounts in case the interest exceeds the threshold limit of Rs 10,000.

Premature withdrawal from EPF account

Withdrawal of accumulated balance in your provident account is generally exempted from income tax. However, in case the withdrawal is made before the completion of five years of continuous period of service and contribution whether under one employer or more than one employer, the amount so withdrawn becomes taxable in the hands of the employee in the year in which such contribution was made.

Since the provident fund office does not have the details of the income of the employee for respective years it becomes difficult for the provident fund office to arrive at the rate at which the tax is to be deducted on such withdrawals. In order to sort out this problem, the Budget proposes that in case the amount of premature withdrawal exceeds Rs 30,000 tax at 10% shall be deducted. In case you do not furnish the PAN details tax @ 30% shall be deducted. In case your taxable income is not likely to exceed the basic exemption amount, you have the option to furnish form No. 15G so that no tax is deducted. Please note that the TDS provisions are not applicable in case you are withdrawing the money after more than five years of continuous contribution.

TDS from salary

Every employer is required to deduct tax from the salary on the basis of the tax liability of the whole year. Generally you are required to submit proof of payment for all the items like insurance premium, PPF contribution, ELSS statement, statement of home loan and mediclaim certificate etc. While calculating the TDS, the employer takes into account various allowances, some of which are tax exempt. As per a decision of the Supreme Court in the case of L&T, the employer is not required to collect any documentary proof while allowing exemption for LTA. In order to ensure that the employer verifies the genuineness of the claim in respect of all the deductions and exemptions, the Budget proposes that the employer shall collect the documentary proof before granting any exemption or deduction or even any claim for setoff of losses. So next year onwards you will have to furnish the proof of your entitlement for all deduction and exemption or even loss under the head income from house property. Please be careful to submit the documentary evidence to your employer so that excess tax is not deducted from your salaries from next year and onwards.

The author is a CA, CS and CFP. He is presently working as Company Secretary of Bombay Oxygen Corporation Limited. The views expressed in this article are his own

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