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Wednesday, November 2, 2016

Section 80TTA

 

Interest income from fixed deposits, recurring deposits and even tax saving bank deposits and infrastructure bonds is fully taxable. Yet, 59% of the respondents to an online survey conducted believed that interest income of up to `10,000 a year is tax free. Actually, the tax exemption of `10,000 a year under Sec 80TTA applies only to the interest earned on the balance in a savings bank account.

Another 6% of the respondents believed that no tax is payable if their bank has deducted TDS. These taxpayers don't realise that TDS is only 10% of the income. If they fall in a higher tax slab, their liability would be higher. In our survey, almost 50% of the respondents who got this wrong have an annual income of over `10 lakh. They pay 10% TDS even though they are supposed to shell out 30%.

Interest income often goes unreported in tax returns. In recent years, new rules have been introduced to plug this leak. Till two years ago, TDS kicked in when the interest from deposits made in one bank branch ex ceeded `10,000 in a financial year. Investors used to split their deposits across bank branches to avoid TDS. Now TDS applies if the combined income from deposits in all branches of a bank exceeds the threshold. What's more, TDS also applies to recurring deposits now.

In future, as banks start sharing data, TDS could be applied to deposits made across other banks as well. The mechanism to track deposits across other banks already exists. If banks share the names and PANs of fixed deposit investors, lakhs of individuals could come in the tax net.

 

Calculate how much interest you will get on your FDs, RDs and other fixed income investments and add that to your income. 

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