Budget 2007 may provide a sweetener for senior citizens and those who prefer to keep their money in fixed deposits with banks. The government is planning to raise the threshold for tax deduction at source (TDS) for payment of interest from the current Rs 5,000.

Under the current rules, banks deduct a tax from the annual interest income earned by anybody, whose pay out is Rs 5,000 or more. However, if the thre-shold is raised, the investors would have the option to instead withdraw the entire amount without tax deduction by banks and, instead, pay the revenue department at their convenience.

The relief would especially benefit senior citizens who invest in schemes such as the hugely-popular Senior Citizens Savings Scheme that offers a 9% interest, run by banks and post-offices. This year, the government has made it compulsory for banks to deduct TDS for this scheme too, for those above the current threshold limit.

But this had created hassles for those senior citizens whose annual income is below tax limit of Rs. 1.85 lakh. To get a refund, they now have to approach the tax department. So pushing the limit beyond Rs 5,000 would provide a big relief to especially this category.

To avoid the getting tax deducted at source, these people have to either submit a certificate from the assessing officer to the bank or file return to get the amount refunded from the income tax department after getting a TDS certificate from bank.

For this they have to queue up at the banks to get TDS certificates and is quite an administrative hassle for banks.
The move has therefore not gone down well with the elderly and evoked widespread criticism. But, now by increasing the threshold, finance minister P Chidambarams may be able to wipe out this criticism.

Besides, threshold for interest income, the government is also mulling raising the ceiling for some other categories also. The threshold for commission payable which is at Rs 2,500 is expected to be raised by at least 10 times.

This move will benefit a large number of vendors who may not be in tax net but get have go through the pains producing a certificate from the AO or wait for refund which block their much-needed capital for quite some time.

Vikas Vasal, director, BSR & Co said the TDS threshold limits cause a lot of hassle for both for banks who have to provide TDS certificates and taxpayers who have to get them from banks.