QUESTION: A plain reading of your answer in The Hindu dated July 18, 2011, gives the impression that interest on savings bank account below Rs.10,000 is not taxable. Is it correct? Kindly clarify. If it is not taxable, then why?
ANSWER: The inference that the amount of savings bank's interest upto Rs.10,000 is not taxable is not correct. Notification referred in the answer anticipates that such income would be included by the employer for the purpose of tax deduction at source on the information supplied by the employee so that a salaried employee with total income below Rs.5 lakh may be spared the duty to file returns. This has been made clear in answering Frequently Asked Questions (FAQs) on the Notification dated June 23, 2011.
Q: Is Permanent Account Number (PAN) required for employees to avail themselves of the scheme meant for employees with income below Rs.5 lakh?
A: The notification clearly specifies that one who wants to avail himself of the scheme would have to furnish PAN to the employer.
Q: Can an employee, who has income below Rs.10,000 from deposits from banks and not from savings account avail himself of the same?
A: The scheme is clear that those who have interest income from savings bank account (not exceeding Rs.10,000) can avail the scheme. It follows that the same extent of income in current account or fixed deposit will rule out the application of the scheme, even if the employees ensure full deduction of tax at source by the bank and/or the employer.
Q: Can an employee avail himself of the deductions under Sec. 80C for the limit of Rs.5 lakh?
A: There is no bar for availing the deductions under Sec. 80C and in fact the other personal deductions under Chapter VI-A to arrive at the total income below Rs.5 lakh. However, deduction for donations to charitable institutions under Sec. 80G, other than donation to Prime Minister's Relief Fund or Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund, cannot be taken into consideration for sparing tax deduction at source as has been clarified in the Board Circular No.8 dated December 15, 2010, which is the ruling annual circular meant for officers disbursing salary. Since tax is deductible at source, there is no bar in notification for availing the scheme, though the reader may have to file a return for refund of tax relief under Sec. 80G, if he wishes to apply for the same, even as clarified in answer to FAQ.
Q: Whether an employee with agricultural income, which is not taxable under the law, permitted to avail the scheme?
A: The Finance Act expects agricultural income above Rs.5,000 to be reported in the income-tax return so that such income could be considered for rate purposes. Though agricultural income itself is not taxed, it will have the effect of enhancing the rate of tax by shifting the taxable income in some cases to a higher tax slab partly or wholly. It is for this reason that the clarification of the scheme is that the employees with more than Rs.5,000 as agricultural income will not be eligible to avail the scheme.
Q: Some of the employees, though covered by the notification, would like to file a return for the sake of continuity. Is there any law against such return?
A: There is no bar for a voluntary return with non-taxable income but exempted from filing a return under the notification. On complaints that some officers refuse to accept regular returns from those covered by the exemption, the Central Board of Direct Taxes vide Order F.No.142/09/2011-SO (TPL) dated July 25, 2011, has directed the issue of instructions to the officers to accept the returns from those exempted by the notification, if filed.
