TDS relief for Bank Depositors

A Good news for Bank Deposits.  Banks will not deduct TDS from Fixed Deposits or for that matter Term Deposits, on interest income upto Rs. 40,000.  However, it is said that the interest income will be taxable as per the slab rate as per current income tax law.  What does this mean?

1. An individual can deposit upto Rs. 5 lacs in a Bank or Post Office Term Deposits, and no TDS will be deducted on the interest earned therein (say approx. the interest paid is 8%).
2. This would give relief to small investors and senior citizens, who do not normally come under the taxable bracket, and are compelled to file their returns to claim refund from Income tax department.
3. Section 194-A of Income Tax Act 1961 is being amended. That is to say till now under section 194-A, if the interest income from Term Deposits kept in a Bank or Post Office exceeds Rs. 10,000 in a Financial Year, the amount is credited to the individual’s account only after deducting Tax at the rate of 10% plus service tax.  However, the same was not applicable to Housing Finance Companies.
4. Interest earned on such Term Deposits is taxed on accrual basis at the applicable slab rate.
5. The Tax slab reads:
   1. 10% TDS on Resident Deposits
   2. 20% TDS on those depositors who do not have a PAN
   3. 30.90% TDS to non-resident Indians.
6. Now exemption is allowed on TDS by submitting form 15G for normal citizens and form 15H for Senior Citizens. Also, a false declaration under 15G/H is liable to be penalized.
7. Also, Savings Banks Account holders will continue to get exemption under section 80TTA on interest paid upto Rs. 10,000 from savings in a Financial Year. This would be applicable for Bank and Post office Savings Account Deposits.   Any interest amount received above this Rs.10,000 will be taxed.
8. In the last year budget, a new section named Section 80TTB was introduced, which permits Senior Citizens aged 60 years and above, to claim deduction up to Rs. 50,000 of interest income from deposits with either banks, co-operative societies or post office from their gross total income before tax is levied.

Surge in Bank Deposits

• Last few months have seen a good growth in bank deposits, however, have lagged behind from banks’ credit growth.
• As on 4^th Jan 2019, the deposits have shown a growth of 9.9% year-on-year or Rs. 10.85 lakh crore, and advances have increased by 14.5% or Rs. 11.85 lakh crore. This has resulted in banks raising their deposit rates in order to attract more funds and retain the customers.
• A large gap between the deposits and advances growth puts the banks on the burden on managing their liquidity which otherwise is done through a better focus on deposits growth.
• Collection through various Small Savings Schemes has increased since the gap between the Small Savings interest rate and average bank deposit rates say for a period of 1 year, is 98 basis points.
• Further, many investors who are averse to taking any risk, are slowly diverting to invest in Mutual Funds and Insurance products.