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While going through some of the tax liabilities that we hapless citizens are faced with, I came across the concept of TDS or the tax deducted at source. The philosophy behind TDS is that if an individual does not file a return (or does not pay income taxes) and it is not feasible to catch hold of him, it makes sense to deduct tax at the point of payment (or the deductor in TDS parlance).
I am focussing on the TDS on bank interest rates only at the moment.
As per the rules currently (FY 2010-11), if the interest in all fixed deposits / savings accounts in a particular branch of a bank exceeds 10,000, the account is liable for TDS at 10.3% (cant ignore the cess part, can we?)
But in case we are able to distribute the deposits in different banks / branches, the TDS will not be applicable if the interests from each branch is less than 10k. This is as per the link below.
http://www.allbankingsolutions.com/depsub3.htm
But again, the new age banks like ICICI bank go a step ahead and club FDs across branches, so one ends up losing money in the form of TDS even if these deposits are made across branches (you cant get away just like that!)
I wanted to check on my interest income on savings account, and if TDS would be applicable on me. Now the savings account pays me a measly 3.5% pa. To limit the interest income to 10000, I should have a balance of less than 2.84 Lakh. I will be called stupid if my account shows a balance greater than this J
On FDs with interest rate of, say 7.5%, the investment cap will be 10000 / 7.5% = 1.33 Lakh (quite low by today’s standards). Overall, we end up with liabilities more than the income tax we already pay on our salaries (hey, isn’t that called TDS as well?)
A comprehensive list of TDS rates currently applicable is here:
http://www.saraltaxoffice.com/resources/tds-rates.php
But the bottomline is: irrespective of TDS being deducted or not, we have to pay income tax at the applicable tax rate when filing returns. So a calculation is a must (Excel is a boon in such times).
Sources:
http://en.wikipedia.org/wiki/Tax_Deducted_at_Source (a comprehensive view)
http://www.saraltaxoffice.com/resources/tds-rates.php (a more objective view)
http://www.allbankingsolutions.com/depsub3.htm (Basic funda of TDS)
http://mytaxes.in/index.php/topic,39.0.html (people’s queries / experiences)