Do Indian tax laws allow an individual to have multiple fixed deposit accounts in different banks wherein the interest earned per account is below Rs 10,000? Though there is no tax deduction at source (TDS) on each account, the total interest income will exceed Rs 10,000? Will things change under the Direct Tax Code (DTC)?
At present, when the interest payable exceeds Rs 10,000 per year, a 10 per cent TDS is deducted by each branch (plus a 3 per cent education cess). Even under DTC, there is no change in this limit. The tax rate proposed also remains unchanged, except that the education cess to be levied is not specified. (Note: DTC is still in a draft stage and subject to modifications)
I work with a private sector bank as a manager (Scale I). My grade revision was due in November 2007, but occurred in April 2010. I will receive arrears of Rs 1.25 lakh next month. During 2007-09, I was not in any tax bracket and did not file tax returns. Due to the arrears, my income will rise suddenly. Is this amount taxable?
Arrears of salary paid to you are taxable in the year of their receipt. However, there is tax relief under Section 89 (Rule 21A). Under the section, an individual cannot be made worse off by paying higher tax in the current year due to receipt of salary arrears. To claim it, you need to submit Form No 10E to your employer. The relief under Section 89 is to be calculated as follows:
a) Calculate the tax payable in 2010-11 (April-March) on the total income, including and excluding the total arrears of salary and the difference.
b) Calculate the tax payable for three different tax years separately on the total income, including and excluding the arrears of salary for each tax year and the difference.
c) The excess of the difference calculated in (a) and the one calculated in (b) will be the tax relief under Section 89, which will be reduced from the tax liability for 2010-11. If the excess amount is negative, then no relief is admissible. Your employer will calculate and grant such relief when withholding taxes from the salary.
The writer is the partner, Deloitte Haskins & Sells. Send your queries to yourmoney@bsmail.in
