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Postal deposits may lose TDS exemption
July, 10th 2006
A fixed or recurring deposit with the post office could soon require you to pay tax on the interest earned. 
 
The income tax department is mulling withdrawing the tax-deducted-at-source exemption on instruments such as fixed, recurring deposits and the national savings certificate offered by the department of posts. 
 
The finance ministry had last month clarified that tax deducted at source (TDS) is applicable on the senior citizens savings scheme, operated by the department of posts. 
 
The issue of withdrawal of the exemption was raised at the meeting of chief commissioners and directors-general of income tax earlier this week. 
 
It was pointed out by some zones that several instruments offered by the department of posts did not pay TDS. The matter is now under examination, a finance ministry official said. 
 
Increasing TDS collection is a focus area for the tax department since it accounts for 45 per cent of direct tax collections. Officials said the chief commissioners meeting noted that several government departments did not pay TDS because they were unaware. 
 
At present, several instruments offered by the postal department such as fixed deposits, recurring deposits, investment deposits and national savings certificates are notified for exemption from TDS. 
 
There is a view that if TDS is applicable on the senior citizens savings scheme, which targets mainly retired persons, then it should be applicable on other investment instruments offered by the department of posts, an official said. 
 
The finance ministry had only last month said that interest accruing on deposits held under the senior citizens savings scheme, 2004, was taxable as per the provisions of the Income Tax Act, 1961 and was liable for tax deduction at source according to the provisions of section 194A of the Act. 
 
The ministry had said that citizens investing in the senior citizens savings scheme would have to furnish a declaration in Form 15H or Form 15G to the bank / post office, in order to avoid deduction of tax. 
 
 
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