Page 8 - Banking Finance August 2021

BANK UPDATE

It is a matter of serious concern. Pri- The steepest reduction is on five-year two years, your bank may deduct TDS
vate sector is seeing a huge slowdown FD, which it will offer at 6.25% com- at double the applicable rate now. For
in fresh capex commitment and large pared with 7.25% earlier. The lowest example, if a person has earned an
corporates have gone in a big way cut (25 bps) is on FDs between one and interest income of Rs. 5 lakh in both
deleveraging themselves," two years, at 6.5% compared with the preceding years on fixed deposits
Radhakrishnan said at a webinar on 6.75% earlier. with banks and TDS of Rs. 50,000 has
outlook on the economy due to Covid been made in each year. If he/she has
In the first week of June, Capital Small
surge and impact on the banking sec- not filed return in each of the two
Finance Bank and Equitas Small Finance
tor, organised by the Merchants' Cham- Bank, too, had reduced their interest years, tax will now be deducted at
ber of Commerce & Industry. rates. Capital Small Finance Bank offers double the rate, that is, 20%.
Consumer sentiment is weak and gear- the highest interest rate on a 900-day "The tax shall be deducted at twice the
ing for medical expenses due to pan- FD at 6.25%, and Equitas Small Finance applicable TDS rate or at the rate of 5%,
demic worries has pushed people avoid Bank offers its highest rate, 6.5%, on an whichever is higher," said Tarun Kumar, a
spending, and this has hit demand. FD of 888 days. Fincare Small Finance New Delhi-based chartered accountant.

"People are in a wait-and watch- Bank and Jana Small Finance Bank had "At times, some taxpayers don't want
mode. Credit off take can happen only lowered interest rates last month. to get into the hassle of filing an ITR
when investment cycles come back and The only banks that offer a 7% inter- as they may not have any tax liability.
that can happen only when confidence est rate on FD are Utkarsh Small Fi- But, they may have earned an inter-
comes back and private investments nance Bank (for 700 days) and North est on Rs. 5 lakh and their bank may
will follow when confidence returns," East Small Finance Bank (for 777 days), have deducted TDS of Rs. 50,000. The
he said. according to their websites. taxpayer may not have claimed a re-
However, once the economy bounces Most of these banks are still attractive fund by filing ITR thinking that it is the
back, government starts investing in if a depositor wants to open an FD for tax to be paid to the government,"
said Prakash Hegde, a Bengaluru-based
infrastructure and private sector gets a short term. They offer between 6%
back its confidence to invest, credit off and 6.5% rates for maturities of over chartered accountant. In such cases,
take will start improving in the next one year and up to three years. the bank may deduct TDS at higher
three-to-six months. "Both Central and The Reserve Bank of India had started rates now, he added.
State governments should try to boost offering small finance bank licences "Also, it may happen in case of house-
consumption by taking liberal view on only around six years ago. Some wives who may not have a regular
the fiscal front. The gradual unwinding microfinance institutions opted for business or profession but may have
of lockdown and a larger vaccination small bank finance licences. As these received some payment for any job
drive will help us recover from the lows companies are yet to establish a track they have done in the previous finan-
of Covid-19," he said. record as banks, most investment ad- cial years. If the pay or had deducted
visers recommend depositors should TDS (of more than Rs. 50,000), and she
Small finance banks start park only short-term funds with them. didn't file ITR and now, if she has
earned interest income this year, the
reducing rates bank may deduct TDS at a higher rate,"
Banks can deduct higher
The days of small finance banks offer- said Hegde.
ing over 7% returns on fixed deposits TDS for non-filers of ITR Banks need to ensure that the person
(FDs) are coming to an end. Most have From 1 July, new rules for tax deduc- to whom the interest is paid is not a
started reducing interest rates across tion at source (TDS) under Section non-filer of ITR. Therefore, taxpayers
segments. 206AB have come in effect. Under this should file their return of income to
new section of the Income Tax Act,
Suryoday Small Finance Bank is the lat- avoid TDS at a higher rate. The tax
est to lower deposit rates. From 21 non-filers of income tax return (ITR) will department has made a compliance
June, the bank will reduce FD rates by be subject to higher TDS rates in case portal where banks and other entities
25-100 basis points on different matu- TDS in the previous two years was Rs. can check if the person has filed ITR in
rities. One basis point is one-hundredth 50,000 or more. the previous years or not and the
of a percentage point. So, if you did not file ITR for the past amount of TDS deducted.

8 | 2021 | AUGUST | BANKING FINANCE