As per reports in newspapers ,a committee on direct tax reforms has recommended major reforms on TDS(tax deducted at source).Under this report as reported by Media Not only TDS rates has been proposed to be reduced but cut off amount has also been recommended to be enhanced.
This report of 90 pages is yet to be submitted to Ministry of Finance.The cut off limits has not been amended since last five years, whereas inflation is also 7-8 % ,so accordingly cutoff amount should be enhanced by at least by 40-50%.
TDS on interest income :Present Cut off amount on tds on interest is Just 10000/- for bank interest and 5000 for other interest and rate of deduction is 10% .However ,Person with age up to 60 may apply for non deduction of tax at source on form 15G if his total income is less than exemption limit.
But if income of person is more than exemption limit and tax liability is nil after claiming of various deduction then he can not furnish form 15G. So TDS is being deducted by banks on interest earned for such person having nil tax liability.
In a 90-page report, which will be submitted to the Finance Ministry this week, the committee has instituted TDS reforms as one of the core recommendations for Union Budget 2016. Once endorsed, these recommendations will be incorporated in the coming budget.
The committee has proposed to raise TDS limit on bank deposit interest from Rs 10,000 to Rs 15,000 and rate of deduction from 10 % to 5 %.
It also has a big relief to brokers. Currently, one has to pay 10% TDS on commission or brokerage of Rs 5,000 or above. The committee has suggested that the limit should be Rs 15,000 with 5% TDS.
Similarly, National Saving Scheme (NSS) depositors may get a relief. Currently, interest of Rs 2,500 and above earned under NSS deposits attracts TDS. The committee has suggested that the limit be increased to Rs 15,000 and the TDS be reduced from 20% to 5%.
Home and building owners will get a relief on rental income. The committee wants the limit of rental income for paying TDS be hiked from the existing Rs 1,80,000 to Rs 2,40,000. This TDS limit should also be applicable to plant, machinery and equipment, it said.
The committee has recommended a complete overhauling and even deletion of irrelevant rules of different TDS components. For instance, 'interest on securities' have to deleted and should be merged with interest income as a new section (194 A) of Income Tax Act from June 1, 2016.
We hope that most of the recommendations will be accepted in the Union budget.