Budget 2018 is to be presented soon by Finance Minister Arun Jaitley and keeping this in mind, everyone – from tax experts to various industries and organisations — is busy making one’s Budget wishlist. The Institute of Chartered Accountants of India (ICAI) has also submitted it’s pre-Budget 2018 Memorandum on Direct, International and Indirect Taxes, containing suggestions for the Finance Ministry for consideration while formulating the tax proposals for the Financial Year 2018-19. ICAI’s suggestions basically revolve around improving tax administration/ collection/ compliances, reducing litigation, rationalization of the provisions of various tax laws, removal of procedural/ administrative difficulties, and certain new initiatives, among others.
ICAI’s suggestion regarding deduction in respect of interest on deposits in savings accounts (Section 80TTA)
According to ICAI, Section 80TTA was inserted by the Finance Act, 2012 to provide deduction of up to Rs 10,000 in the hands of individuals and HUFs in respect of interest on savings account with banks, post offices and co-operative societies carrying on business of banking. However, it is unlikely that salaried individuals would keep their entire savings in a savings bank account, which earns a much lower rate of interest as compared to term deposits. They are likely to transfer some portion of their savings to several deposits to earn comparatively better returns. Therefore, since the money is anyway kept within the banking channels, ICAI has suggested to the Finance Ministry to include all types of deposit interest within the ambit of Section 80TTA, which can be done by rationalisation of the provisions of direct tax laws.
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Expert Take on Section 80TTA
Let’s first understand Section 80TTA in detail and then the issue involved with it which might get resolved in the coming Union Budget so that its benefit to the common man could be extended to a greater extent.
Section 80TTA provides deduction to an individual and HUF in respect of interest income from savings account held with any of the following:
# Bank or Banking Company.
# Co-operative society carrying on the banking business
# Post office
“The quantum of deduction allowed under this section is Rs 10,000 or the actual interest earned, whichever is lower. If interest earned is more than Rs 10,000, then the balance amount will be taxable as ‘Income from Other Sources’. This deduction is in addition to the deduction of Section 80C of the Income Tax Act, 1961,” says CA Vertika Kedia, Co-Founder, Tax2win.in.
Remember, for the purpose of determining the limit of Rs 10,000 you have to consider your total interest income from all banks where you have your accounts. Now, the issue involved in this section is that this deduction is NOT allowed on interest earned on term deposits. Term deposits mean deposits repayable on expiry of fixed periods. It includes fixed deposit, recurring deposits etc.
“If we talk from the perspective of the common man, then it is quite obvious that people are more interested to keep their money in banks in the form of FD or other term deposits due to higher returns. So, the purpose of this section is being defeated to an extent as anyway people keep the money in banks only, but in different form, i.e. less amount in savings and more in FD, therefore unable to fully utilize the limit of Rs 10,000. Therefore, the scope of this section should be widened in the Budget 2018 and include time deposits also so as to rationalize the effect of the provision,” says Kedia.