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Union budget likely to give relief to taxpayers

In what could be termed as the last full fledged Union Budget before general elections next year, the Narendra Modi…

Union budget likely to give relief to taxpayers

Representational Image (Photo: Getty Images )

In what could be termed as the last full fledged Union Budget before general elections next year, the Narendra Modi government is likely to provide some relief to taxpayers. The government is considering increasing the limit of tax deducted at source (TDS) for bank interest from the current Rs. 10,000, which was fixed in 1997, to ensure more interest amount for customers.

Bank fixed deposits have become less attractive due to lower interest rate and inefficient tax mechanism. Moreover, the recent surge in stock markets coupled with sops for investment in mutual funds have seen shift of funds from bank deposits to the mutual fund industry.

Senior government officials said, “An increase in TDS deduction limit will ease the compliance burden on taxpayers while at the same time not impacting government finances in a big way. The government has already lowered the entry level income tax rate to 5 per cent in last year’s budget. This year’s budget will look at ways to provide more relief to middle class citizens.”

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Ahead of the budget, Prime Minister Modi is likely to hold a meeting with 30 top economists of the country on 10 January, along with Union Finance Minister Arun Jaitley, members of the Economic Advisory Council for PM and other finance ministry officials.

At present, in case of fixed deposits, banks cuts TDS at the rate of 10 per cent if the interest income for the year is more than Rs 10,000. If the person has not provided his or her permanent account number (PAN), bank will deduct TDS at the rate of 20 per cent. Even if your bank has deducted TDS, you should report the interest income in your tax return. Also, if you fall in the higher tax bracket of 20 per cent or 30 per cent, you should pay the extra tax if your bank has deducted TDS at the rate of 10 per cent.

However, the rapid fall in deposit rates in the last year has shaken people’s belief in the favourite instrument for investments. People were contemplating a shift to alternative ways of parking their surplus, and the process quickened after demonetisation as banks sharply reduced deposit rates.

During industry presentations, experts suggested to bring the FD taxation at par with debt mutual fund, wherein an investor is taxed only on redemption. If the redemption is after three years, the tax is calculated on long term capital gain basis with indexation benefits.

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