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Bankers are expecting a significant ease in operations and higher deposits by small depositors with the Interim Budget planning to raise the TDS threshold on interest earned from bank and postal deposits, although experts say there will be no real tax benefit from the proposal.
Interim Finance Minister Piyush Goyal on Friday announced that the tax deducted at source (TDS) threshold on interest earned on bank and post-office deposits will be raised to ₹40,000, from the current ₹10,000. “This will benefit small depositors and non-working spouses,” Goyal said giving a partial relaxation amidst calls to make the interest income on bank deposits tax-free. State Bank of India Chairman Rajnish Kumar said, “Hiking the ceiling limit for TDS on bank deposits and small savings will act as a catalyst for this deposit segment by attracting the new depositors.”
According to R Baskar Babu, Managing Director and CEO of Suryoday Small Finance Bank, this benefit will be especially useful for those who earn less than ₹5 lakh and have been promised an exemption from income tax.
“Many customers in this category will choose to put their money in fixed deposits and savings accounts as now the post tax returns will be better. For small finance banks, such as ours, this will give a boost to deposits,” he said, adding that it will accelerate granulated deposits ranging from ₹2 lakh to ₹5 lakh.
However, bankers don’t think the move will lead to a significant push in liquidity with them. “I don’t think it will have much impact. But it will lead to a lot of operational ease and comfort for both the customers and the banks as it removes the hassle of TDS,” said an executive with a private sector lender.
Ease of compliance
Tax experts also said it will ease the burden of compliance. “This is not meant to bring any tax benefit, but to just ease the compliance burden for those who primarily earn income from deposit made with bank or post office or co-operative society. There shall be no tax benefit from this amendment,” said Rakesh Nangia, Managing Partner, Nangia Advisors LLP.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates, said the amount of interest will form part of income and the person will still have to pay tax if his income is above exemption limit.
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