Union Finance Minister Nirmala Sitharaman will deliver the Budget for the current year on February 1, 2023. With this Budget, expectations are high that individual taxpayers may get more income tax relief on their savings and fixed deposits. Banks want interest on a fixed deposit (FD) of up to Rs 5 lakh to be made tax-free in Budget 2023. Additionally, they want limit increase under Section 80TTA.
Section 80TTA provides deduction of up to Rs 10,000 in the hands of individuals and Hindu Undivided Family (HUF) in respect of interest on savings account with banks, post offices, and co-operative societies carrying on the business of banking.
The Indian Banks Association (IBA) has reportedly made representation to the finance ministry to make investments in a fixed deposit of up to Rs 5 lakh tax-free. This will make bank fixed deposits competitive against the other savings products, bankers were quoted as saying in media reports.
Currently, the tax deducted at source (TDS) on FD is levied if the interest earned exceeds Rs 40,000 in a fiscal year. The limit is Rs 50,000 for senior citizens. The same is the case with tax saving FDs too, which offers deduction under Section 80C of the Income Tax Act, 1961. The interest earned on the deposits is taxable.
Talking about savings accounts, experts said that it is unlikely that salaried individuals would keep their entire savings in them, which earns a much lower rate of interest compared with term deposits.
"So, they transfer some portion of their savings to term/recurring deposits in banks to earn comparatively better returns. It is better to increase this limit to Rs 50,000," said Tapati Ghose, Partner, Deloitte India.
Additionally,
Section 80TTA only provides for deduction in respect of interest on savings bank account interest. Experts think that interest on all types of bank deposits, such as Fixed Deposits, should be included within the scope of section 80TTA.
Also, the rate of interest for savings accounts is low. Thus, to levy the tax on interest income up to Rs 20,000 must be exempted, said Abhishek Soni, Co-Founder at Tax2win.
"This increment in the tax deduction will allow individuals to build interest among the taxpayers to invest in such interest-bearing investments," Soni said.
