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FD tax sops come with a PAN rider
August, 02nd 2006

Investors gearing up to park their money in term deposits of five years to get tax benefits will have to pad up to face some googlies tossed up by the taxman.

They will have to furnish their permanent account numbers (PAN) to banks even if they invest small amounts in these deposits.

The term deposit receipt issued by the bank will have the PAN of the depositor. This implicitly means that the onus is on banks to provide the PAN and banks will source it from the depositor. Not just that, investors cannot pledge the term deposit as a collateral to secure a loan or any other asset.

This is unlike, say the National Savings Certificate or the Public Provident Fund (PPF) which can be used as collaterals. Investments in these two instruments also qualify for tax deduction under Section 80C of the Income Tax Act.

The government notified the Bank Deposit Savings Scheme 06 on Monday and several banks are now readying products that will be consistent with the features of this scheme. An individual will get a tax deduction up to Rs 1 lakh under Section 80C on investments made in such a product.

The bank which offers this product will give a receipt with the name, address and PAN of the depositor. PAN is a must because tax authorities will match the investments made by individual in these term deposits with his income tax returns and verify if the correct amount of deduction has been claimed.

The scheme is essentially designed for assessees who claim tax deduction under Section 80C. There is no bar on others to invest in these deposits as well. The only pre-condition is that PAN has to be furnished, said a revenue department official.

Unlike the new term deposits, quoting of PAN is not a must for savings schemes such as the NSC or the PPF. The requirement to quote PAN on term deposits that offer tax breaks means an expansion of the PAN base. There are around 2.6 crore income tax assessees in the country and the department has issued around 46m PAN cards to date.

Nearly 5,00,000 cards are issued every month. Individuals have to compulsorily quote their PAN numbers in a host of financial transactions including cash deposits and time deposits exceeding Rs 50,000 a year, purchase of bank draft exceeding Rs 50,000 a day and deposits exceeding Rs 50,000 in post office savings bank account.

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