Budget passed with rider on bank deposits

Existing long-term deposits may not get IT benefits under amended provisions of Section 80C.

Existing long-term deposits with scheduled banks may not get income tax benefits under amended provisions of Section 80 C.

According to amendments made in the Finance Bill, passed today in the Lok Sabha, the government clarified that it would frame a new scheme for this purpose.

The amendments state benefits would be available "for a fixed period of not less than five years with a scheduled bank and which is in accordance with a scheme framed and notified by the central government, in the official Gazette for the purposes of this clause".

"It would appear that the scheme would try and cover issues like premature termination of term deposits to cover any tax planning opportunity that may have otherwise existed before the amendments," Rajiv Anand, associate director, PricewaterhouseCoopers said

Under Section 80C, individuals can invest up to Rs 1 lakh for life insurance premium, deferred annuity, contributions to provident funds, and subscriptions to certain equity shares and debentures. This investment in any of these instruments will not be taken into account while calculating an individual taxable income.

The government had included term deposits of up to 5 years under this Section in the Budget. The government has also inserted a new Section, 93A, which allows it to grant rebate of service tax paid on input services used to manufacture goods or services exported.

Officials said the provision would also enable the government to refund duty on service inputs through duty reimbursement schemes like drawback from the next fiscal. The drawback scheme can also be extended to cover service exports.

The scheme at present reimburses inputs costs suffered on merchandise exports. The government has also imposed an excise duty of 8 per cent on IT software. The Budget proposed zero excise duty on this.