Tax on interest income may lead to rush for post offices schemes

Tax on interest income may lead to rush for post offices schemes
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First Published: Mon, Mar 05 2007. 11 45 PM IST
Updated: Mon, Mar 05 2007. 11 45 PM IST
The provision in the Budget to levy tax deducted at source (TDS) on interest income of Rs10,000 or more in a year could lead to an inflow of funds into post office savings instruments as these continue to be outside the purview of TDS.
“Post office instruments such as the Indira Vikas Patra, Kisan Vikas Patra, the National Savings certificate, their monthly income scheme and recurring deposits do not attract TDS. Hence, people, who are keen to avoid detection of their income, are now likely to park their funds in the post offices,” said Girish Ahuja, a CA.
Finance ministry officials said they were aware that several instruments in post offices were outside the purview of TDS. “Last year, we clarified that TDS would be leviable on post office senior citizens savings scheme. We will gradually expand the scope of TDS on others instruments offered by the post office. Several of them have been deliberately exempted because the general view is that many of the subscribers to these instruments are outside of the tax net.
“Also, post offices have low levels of computerization. Hence, it is not easy for them to provide details at par with the banks,” a finance ministry official said.
The finance ministry has raised the limit of interest income earned on bank deposits for purpose of TDS from Rs5,000 to Rs10,000. Concurrently, it has also said that banks would now be required to submit quarterly data on all interest income exceeding Rs10,000 per annum. This limit was earlier Rs5,000 per annum.
Ahuja said any individual who earns interest income of less than Rs10,000 per annum may not have to pay TDS. But the details on all such deposits would still come to the revenue department through the mandatory requirement on part of banks to give the details on interest income of up to Rs10,000 to the banks.
Another provision in the Budget that could adversely impact businesses is the provision to disallow 100% of any payment being claimed as ‘business expenditure’ if the same is not paid through an account-payee cheque or a bank draft, Ahuja said.
“Earlier, the government would disallow 20% of the payment towards business expenditure if the same was not done through an account cheque or through a draft. Even prior to 1995, 100% was disallowed, but there was a provision allowed to the industry that if they were prevented from using a cheque or draft on account of sufficient cause, and were able to convince the assessing officer of the same, they could be allowed to show the entire payment as business expenditure. While there are certain exemptions which are allowed under section 6DD, the provision of sufficient cause should be re-introduced,” Ahuja added.
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First Published: Mon, Mar 05 2007. 11 45 PM IST