MUMBAI: While rationalising provisions of tax deduction at source (TDS) in the Union budget 2007-08, the Finance Minister proposed to increase the threshold limit on interest payable by a banking company or a co-operative society or a post office (under Section 194A) to Rs. 10,000 from the current level of Rs. 5,000.

However, the increase in the threshold limit would not benefit depositors who park their funds with non-banking finance companies (NBFCs)

"The Indian Banks' Association (IBA) had represented in the recent past that Rs. 5,000 is too small an amount and it requires a revision. We had also asked to step it up,'' V. P. Shetty, Chairman and Managing Director of IDBI, and Chairman of IBA, said.

"We have been asking for a level playing filed so that bank deposits also be competitive compared to other investment available to investors,'' Mr. Shetty added.

The existing clause (i) of sub-Sec. (3) of Sec. 194A provides that deduction of income tax at source shall not be made in a case where the amount of income by way of interest other than `interest on securities' does not exceed Rs. 5,000.

The amendment proposes that the limit for TDS under the aforesaid section shall be Rs. 10,000 where the payer is a banking company or a co-operative society engaged in carrying on the business of banking or a post office in respect of notified schemes. In other cases, the threshold limit shall be retained at Rs. 5,000. This amendment will take effect from June 1, 2007.

Harihar Krishnamoorthy, Country Treasurer of Development Credit Bank, said this would help small depositors, who would have to file regulatory forms at frequent intervals to avoid TDS. "This is a people friendly move and will also ease the pressure on the banks' back-office.'' This will also make bank deposits more attractive and help banks garner deposits on top of the surge already experienced as a result of tax relief for deposits of five years and above granted in last year's budget.

Mr. Shetty said, "banks have started giving higher rate of interest and the investment in banks has always been considered more liquid compared to other investments. Further an investor will be able to raise loan against deposits and also close his deposit before the maturity.

"These factors are helping the funds to flow to the banking sector in the case of time deposits and the budgetary rationalisation of provisions of TDS will further boost the deposit mobilisation programmes of banks than other institutions.''

NBFCs feel let down

Chennai Special Correspondent writes:

Non-banking finance companies (NBFCs) are upset over exclusion from the increase in the threshold limit for TDS applicable to banks, co-operative societies and the post office.

T. T. Srinivasaraghavan, Managing Director of Sundaram Finance, termed the exclusion of NBFCs `discriminatory'.. He regretted that though NBFCs too complied with provisioning norms of the Reserve Bank of India, the sector got a `step-motherly treatment'.

Terming the non-inclusion of NBFCs as an avoidable irritant, he said the move would leave the field further uneven. The continuing demand of NBFCs for parity had gone unheeded, he added.

Printer friendly page  
Send this article to Friends by E-Mail