The start of the new financial year (2012-13) will mean several changes on the tax front that will require a different kind of response from the individual tax payer.
The start of the new financial year (2012-13) will mean several changes on the tax front that will require a different kind of response from the individual tax payer. The Union Budget has proposed that there should be a deduction available to interest on savings bank account.
This will become applicable if the Union Budget is passed by Parliament. This has the potential of ensuring a big amount of relief for the tax payers on the procedural front so it is necessary to look closely at the exact features to see how they can actually be beneficial for the investor.
Just savings deposits
The first part of the benefit of the deduction is that this will not be available for time deposits so your fixed deposit interest with the various banks will not be covered under this deduction. Even recurring deposit interest will not be a beneficiary under this deduction.
This is a clear way of ensuring that only those deposits that are lying in the savings accounts would get the deduction benefit on the interest earned. This clearly defines the scope of the benefit but it is not something that should worry the individual because this is an additional or extra that they are getting from the existing situation and they should be looking towards making the best use of it.
Amount of deduction
The extent of the deduction that has been proposed is that this will be available till a sum of Rs 10,000 in a year which means that the interest earned till this figure would be deducted from the taxable income. This figure becomes the upper limit for the benefit. This means that even amounts that are lower than this figure would be allowed the benefit of the deduction.
It does not necessarily have to be that the investor should make the full use of the limit but they can use it till the extent that they have income from their savings accounts so while someone could have a larger amount like Rs 8,000 here others would have a small amount of just a few hundred rupees but all of them can ensure that the interest earned does not become taxable.
Deposits with specified institutions
It is also clarified that the savings bank deposits present with specific institutions will be eligible for the benefit. This will cover a bank to which the Banking Regulation Act is applicable so all the banks that most people bank with and where the investors have a savings bank account would be covered by the benefit.
The second is that a co-operative society engaged in the business of banking would be covered and this will bring into the picture all the co-op banks where the depositors have their money. Finally even the post office savings bank is covered so this will extend to this area also and hence on the whole all these areas where an individual might have gone and put opened a savings bank account would be covered by the benefits.
There should be a clear strategy that is adopted by individual who would want to maximise their benefits. Now there are banks that are offering rates of 6% and 7% on the savings bank accounts and hence if individuals want to use the full amount of Rs 10,000 on this area then they should keep some amounts in these savings accounts so that the savings bank interest earnings go up.
Those who are in the 30% tax bracket can actually afford to do such a thing because otherwise if they have a fixed deposit at 9% then the earnings after tax would come down to 6.3% plus the amount would be locked in for the specified time period of the deposit.
In such a situation if they are able to direct their investments towards higher earning savings bank accounts to use as much of the available limit as possible then this should be done. For others they can continue with their planning normally and use up the limit till which they have earnings from the savings bank account.
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