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Devils in the Union Budget 2015-16's fine print

Union Budgets presented by the Finance Ministers every year typically contain numerous proposals. 

While a few of the prominent announcements get extensively discussed and debated, many are overlooked and often go practically unnoticed... till the tax notice hits you.

So what devils lie in the details of this year's Union Budget?

1. Computation of Rs.10,000 limit on 'TDS-free' FD interest revised
As you would surely be aware, the interest income on your Fixed Deposits becomes liable for Tax Deduction at Source (TDS) when it exceeds Rs.10,000 in a Financial Year. 

Presently, the bank has to compute this interest on all your fixed deposits maintained with "each branch separately". So you can escape the TDS provisions by spreading your fixed deposits across different branches of your bank.

Union Budget 2015-16 puts an end to this practice. Henceforth, a bank will have to compute your interest earnings for all your fixed deposits across "all its branches put together" to determine whether you exceed the specified limit of Rs.10,000 per year or not. As such, you can no longer avoid the TDS using this strategy.

Very Important: As I have repeatedly warned, TDS is not the end of your tax trauma. And, in this connection, you must have read my post Form 15H and 15G Decoded.

2. TDS on Recurring Deposits
As discussed in Pt.1, Fixed Deposits (also known as Time Deposits) attract tax deduction at source if the interest income on the same exceed Rs.10,000 in a given Financial Year. However, till now Recurring Deposits were exempt from any such tax deduction at source.

This is now history. Henceforth, even Recurring Deposits would fall under the classification of Time Deposits and thus attract the relevant provisions of TDS. Of course, like FDs, TDS on Recurring Deposits too will apply only when the interest earning on the same, across all branches, is more than Rs.10,000 in a given Financial Year.

3. Loophole plugged in the TDS provisions on deposits with co-operative banks
Your fixed deposits with co-operative banks too are liable for TDS as discussed in Pt. 1 above.

But, in the tax laws, there is a TDS exemption granted to the interest payable by a co-operative "society" to its members.

This provision is being misused by some co-operative "banks" by making their depositors as members.

To remove any ambiguity and confusion, the law is being suitably amended to ensure that all Time Deposits with co-operative banks too come under the provisions of TDS deduction. 

4. Increase in tax on the dividend income from mutual funds
Dividend Distribution Tax (DDT) is deducted on the dividend that you receive on the units of your non equity-oriented mutual funds such as debt funds, MIP schemes, gold funds, international / global funds, etc. The applicable rate of DDT is 25% + Surcharge + Cess.

Till now, the effective DDT worked out to 28.325% [=(25%*(1+10%))*(1+3%)].

But as you know, Finance Minister has decided to extract extra tax from the very rich people by increasing the surcharge from 10% to 12% for those earning more than Rs.1 crore in a year.

This has an impact on the tax payable on the dividends from mutual funds, which will stand revised to 28.84% [=(25%*(1+12%))*(1+3%)] i.e. an increase of 0.515%.


Be aware of these important developments proposed by the Finance Minister Shri Arun Jaitley in his Union Budget for the year 2015-16, and avoid any unpleasant notices from the Income Tax Department.

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