E-Paper
Senior citizens stare at TDS deduction by banks at higher rate
The newly proposed TDS rule doesn’t provide any exception for those exempted from filing income tax returns (ITR).
Banks may start deducting tax deducted at source (TDS) at higher rates as the newly proposed TDS rule doesn’t provide for any exception in cases in which a person is exempted from filing his/her income tax return (ITR), according to a report in Mint. Since there is no exception, the report says, senior citizens (aged 80 and above) may see banks deduct TDS from their interest income at a higher rate as they generally store the bulk of their retirement corpus in bank deposits.
The new proposal, which will come into effect from July 1, states that TDS will be deducted at twice the applicable rate under the Income Tax Act or at 5%, whichever is higher. This is applicable if a person has not filed ITR for the past two years and a TDS of more than ₹50,000 was deducted in each of the past two years.
Banks have to deduct TDS at 10% if the interest income is more than ₹40,000 or ₹50,000 in case of senior citizens, in a financial year. If the interest income is ₹five lakh, 10% means a TDS of ₹50,000. Under the proposed rules, TDS would be deducted at 20%, instead of 10%.
Under the income tax law, those with an annual income under the exempted limit ( ₹2.5 lakh currently) are not required to file an ITR. For senior citizens, an annual income of ₹five lakh is exempted from tax. This means that senior citizens with an interest income of ₹five lakh in a financial year don’t have to file ITR. However, as the new rule says, there’s no exception for TDS even if a person is exempted from filing ITR.
The deduction of TDS is avoidable through Form 15G/15H, which is a declaration of the annual income being under the exempted limit. Form 15G is used by senior citizens over the age of 60.
Presenting the Union Budget on February 1, finance minister Nirmala Sitharaman proposed a rule under which those above 75 years of age are exempted from filing ITR if they have only pension income and interest earned from specific bank accounts.
