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Monday, November 17, 2014

FinMin notifies higher limit for tax savings bank deposits

Following the Budget announcement, the Finance Ministry has notified higher limit under bank term deposit for Income Tax benefit.

Now, for the current fiscal, one can deposit Rs. 1.5 lakh as against Rs. 1 lakh in a bank deposit to get tax benefit under Section 80C of the Income-Tax Act. This means amount deposited up to Rs. 1.5 lakh in a 5-year term deposit will be deducted from income before calculation of personal income tax. The new notification will come into effect from November 13.

In this year's Budget, the Finance Minister Arun Jaitley had announced enhancing tax investment limit under Section 80C to Rs. 1.50 lakh to boost domestic investment in long term savings. “In the year 2012-13, the gross domestic savings were 30.1% of the GDP as compared to 33.7% in the year 2009-10. Increase in savings and their productive use leads to higher economic growth. The households are the main contributors to savings,” he said.

Under Section 80C, one can invest in instruments such as 5 year National Saving Certificate, Public Provident Fund (PPF) , Life Insurance Policies, Equity Linked Saving Scheme, contribution in Employees Provident Fund and besides bank deposits. This limit also includes principal repayment towards home loan. Since, PPF is an independent scheme and have different features, the Government issued a separate notification on August 19 and now there is separate notification for bank term deposit.

The new notification has been issued under Bank Term Deposit Scheme 2006. The deposit can be transferred from one branch of a bank to any other branch of the same bank, but not to other bank. Unlike life insurance policy and NSC, It can also not be pledged to get loan. There is no provision of premature encashment

The deposit holder will have the facility to get interest either in lump sum or every quarter/month. However, interest will be liable to Tax Deducted at Source (TDS). Banks such as State Bank of India has launched tax saving term deposit.

Source : Thehindubusinessline


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