Bindisha Sarang, TNN | Mar 16, 2015, 07.20AM IST | Times of India
There is some bad news for investors who thought their recurring deposits (RDs) will not be subjected to tax deduc tion at source (TDS). The Budget has made RDs liable to TDS if the income in a financial year exceeds `10,000. Till now, only income from fixed deposits was subjected to TDS.
There is also a significant change in the rules relating to interest income from FDs. Till now, the TDS kicked in only if the income from FDs made in a particular bank branch exceeded the threshold of `10,000 in a financial year.It was common for investors to open FDs at multiple branches of their bank to avoid TDS. The Budget has proposed that TDS be levied if the combined interest income from FDs in all branches of a bank exceeds `10,000 a year.
The new rules come into effect from 1 June but banks are already witnessing a rush of investors prematurely closing their RDs and FDs. “The new rules on TDS will help nail tax evasion and improve tax collections,” declares Sudhir Kaushik, Co-founder and CFO, Taxspanner.
However, taxation experts say the new rules should not be a concern for honest taxpayers. They already pay tax on their RDs and FDs. Instead of paying the tax themselves, it will get deducted as TDS. If they fall in the higher tax bracket, they will pay the balance tax.
The third major change in TDS rules is that co-operative bank deposits are no longer exempt. The Budget has proposed that TDS will also be applicable to deposits with co-operative banks.This was more or less expected. Last year, the Karnataka Income Tax Tribunal had ruled that if the interest exceeded `10,000 in a year, it must be subjected to TDS.
Following this, several cooperative banks had received notices from the Income Tax Department asking them to deduct tax for the year 2013-14. Now the Budget has put a stamp of certainty on the rule. “This will bring a lot of revenue to the government through TDS and increase the tax base because depositors would need to adjust or claim refund at the time of filing their income tax returns,” says Kaushik.
Only an interim tax
Investors should note that TDS is only an interim tax. It is 10% of the income.If the investor has not provided his PAN, it is higher at 20%. But the interest earned on RDs and FDs is fully taxable. If the income is below `10,000 and TDS has not been deducted, you have to add the interest to your total taxable income and accordingly pay tax.
The actual tax will depend on the income of the individual. Even if TDS has been deducted, it does not mean that your tax liability is taken care of.If you are in the 20-30% tax bracket, you are required to pay more tax on the income. If the investor has an income of over `10 lakh in a year, the interest from the RD or FD will be taxed at 30%.The balance 20% will have to be paid as self-assessment tax. If he earns less than `2.5 lakh a year, the TDS will be refunded after he files his tax return.
Can you avoid TDS
If you are not liable to pay tax because your total income is below the basic exemption limit, you can avoid TDS by submitting a declaration to the bank.”Those who do not fall under the tax bracket and are below the age of 60 can submit Form 15G to the bank to claim TDS exemption. Those not under the tax bracket and above the age of 60 can submit Form 15H,” says Suresh Sadagopan, a Mumbaibased certified financial planner.Forms 15G and 15H have to be submitted at every branch of the bank where you have a deposit.
Before you rush to submit the Form 15G or 15H, make sure you are eligible. An individual must satisfy two conditions to avoid the TDS. First, the estimated taxable income for the financial year should be less than the basic exemption limit. This is `2.5 lakh for individuals below 60 years, `3 lakh for senior citizens, and `5 lakh for very senior citizens-above 80 years.
The second condition, which is applicable only to Form 15G, is that the total interest income from all sources should not exceed the basic exemption limit.Senior citizens have been exempted from this condition because most retirees get the biggest chunk of their income from interest.
These forms also require the individual to mention details of other incomes, including dividends from shares and mutual funds. Dividend income is taxfree but the Income Tax Department still wants to know how much you earned from them.
You must carefully assess your income before submitting Form 15G to escape TDS. If you are not eligible to receive the exemption, but you submit the form, it can have serious repercussions. “Giving incorrect information to avoid TDS amounts to tax evasion. A penalty of up to `1 lakh can be slapped in such cases,” warns Kaushik.
Investors are rushing to close their RDs before the taxman gets a whiff of their wealth. “Premature closure of my RD will fetch me a lower interest rate. But at least there won’t be a tax deduction,” said an investor at a public sector bank in Delhi.
Banks may see more premature closures of deposits. It is not difficult to see why investors are panicky. Since the TDS is credited to the permanent account number of the investor, not mentioning the income in the tax return can lead to problems. The computer-aided scrutiny system of the tax department could pick up the mismatch in the tax credit and income declared by the assessee, which can lead to a detailed scrutiny by the tax authorities. If tax has been deducted at source but returns have not been filed, the tax department may want to know why.
Source : http://goo.gl/hTTmjB
Narendra Nathan | ET Bureau Jan 19, 2015, 08.00AM IST | Economic Times
RBI surprised the street by cutting the repo rate from 8% to 7.75%. Though small, this ‘between-the-meetings cut’ has given the signal that the RBI is confident of achieving its inflation targets and the focus is shifting towards growth. Since the RBI has always wanted policy action to be consistent with long term rate stance, this cut heralds the start of a new ‘rate cut cycle’. Now the only questions are ‘how much’ and ‘by when’ these rate cuts will happen. Since most experts (see box) see measured rate cuts, how is it going to impact you?
Investments: The Sensex and Nifty jumped by 729 and 259 points respectively on 15 January, when the rate cut was announced. Stocks from rate sensitive sectors rallied. While the bank Nifty hit a new high, the realty index jumped more than 8%. A lower rate increases purchasing power and therefore, is good for most other sectors as well.
Debt investments can be classified according to how the impact of this cut will be felt. The first part, where the market forces decide the price of bonds, has already rallied based on the expectations of a rate cut after the budget.
The 10-year yield came down by a further 10 bps on Thursday. Most experts are predicting a further fall in the 10-year yield. Long term gilt funds and long term tax free bonds should generate double digit returns in 2015 as well.
The second part includes bank FDs and RDs, where the rates are fixed by the banks. Since this rate has not yet fallen, it still provides a good opportunity to lock in at higher rates. Go for FD if you have enough liquidity; else start an RD.
Loans: To protect their margins, banks first cut the rates on FDs and RDs before reaching for the loan rates. In the recent past, banks have refused to bring their base rates below the 10% mark, despite significant deceleration in loan growth.
Though banks may do some token cuts to pacify the RBI, no major cut in lending rates are expected. Borrowers may have to wait for a few more months for the arrival of the “achhe din”.
Since demand for automobiles is weak, the first rate war may start in the auto loan segment. This reduction is possible without tinkering with the base rates because the interest rates on most auto loans are at a significant premium to the base rates. Bargain hard to get a better deal on auto loans.
Since home loan rates are only slightly above the base rates, the reduction will be in line with the reduction in base rates. One should not expect more than 25 bps reduction in home loan rates. This reduction will be only for borrowers who have availed the ‘floating rate’.
However, overall home loans rates are going to come down significantly in 2015. Borrowers who can afford to should wait for better rates. The same applies to those who want to shift between lenders now. Wait for a few quarters, let the borrowing rates stabilise at lower levels and then make the move towards the lowest lenders.
Rajiv Raj | Nov 11, 2014, 03.02 PM | Business Insider
Money management is a tricky task. Some of us loathe it, while others love it. Whatever it is, nobody can ignore it, because it is a very important skill that all of us should acquire. If only it was as simple as learning alphabets in schools? That said; it is not rocket science as well. Unlike popular belief it is not even time-consuming. I even know of a friend who jokes constantly, “I can make money, but for life of mine, I cannot manage it.”
So, for the benefit for all those who feel that they cannot manage their funds well, we decided to put together a list of eight money management moves that can be made in 15 minutes or less. Unbelievable? Read on to find out:
1) Pull out CIBIL score: A credit score and a report from the Credit Information Bureau of India Ltd (CIBIL), India’s leading credit rating agency, is a record of a person’s credit history, his payments and outstanding dues. Lenders pull out your CIBIL report and score before approving you a loan. To get a loan at an attractive interest rate you need a score of 750+ (ranges between 300-900). Check your score at least once a year, to make sure there aren’t any errors or discrepancies even though you have been paying on time.
2) Start an RD: A recurring deposit (RD) account can be easily linked to your savings account. Banks can take a request for an RD on phone and you can start saving as low as Rs 1,000 a month. Instead of spending money in paying interest on those products, which are available under easily available equitable monthly installment schemes, save up through RD, earn an interest and buy it.
3) Update your nominees: You have been putting away money to save for your wife, children or any other family member. If something were to happen to you tomorrow, are you sure all your loved ones get exactly what you intended for them? It is always a good idea to name your nominees in every kind of saving instruments; be it an insurance policy or a simple savings bank account.
4) Make a will: We love to believe that our children will not fight over property after we are gone. But the reality is different. It is important for us to create a will as we reach 35 years of age. I know of friends who started writing a will as soon as they had their children. The advantage of a will is that after we are gone, our near and dear ones know what exactly they get from what we have earned and saved. It also prevents any kind of misunderstanding among our children and results in easy distribution of our wealth. Ensure you make provision for your spouse as well. Once written, it is open to any kind of amendments you want.
5) Update account passwords: It might seem like a mundane task, but an important one. This helps in keeping your money safe and protected from phishing and fraudulent activities.
6) Plan your pension: Earlier our parents, most of them worked in government agencies. These jobs were not only safe, but also promised pension after they retired. Since most of us are working in private sector these days, can you think of a regular income after you retire? Hence, it is important for us all to have a financial plan in place to fund our expenses during our later years.
7) Scan important documents: Your form 16s, house registration papers, insurance policies, savings instruments documents, fixed deposit (FD) certificates, vehicle ownership papers and all other such documents have to be safe. Scan and keep a soft copy handy and keep the originals locked in a bank locker. There are many phone apps available for download that can help you scan these documents.
8) Identify saving goals: Yes, it can be overwhelming to save when half your salary goes in paying up mortgages, but that should not stop you from saving. You should always target to build a corpus continuously. For all you know, some day you decide to buy another house and you may not have to run from pillar to post for funding the down payment.
About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.
Source : http://goo.gl/2GPyWr