The proposal made during the Interim Budget to increase the limit of the tax deducted at source (TDS) on the interest will make the FD schemes of the banks more attractive, according to experts. This will even make it challenging for mutual funds and equities. After the Budget, investments in real estate are likely to increase, according to the experts. The Finance Minister, among other important things, announced that the TDS limit, under Section 194A of Income-Tax Act, will be increased to INR 40,000. Presently, this figure is fixed at INR 10,000. The proposal, made during Budget 2019, will have a positive effect in the industry, as investors will be incentivized to put the finances in the bank deposits.
It should be pointed out, that the increment in the limit of TDS has been a long-standing demand. A large segment of the investors will be benefitting from the announcement. As of March 2018, the banks had 3.9 crore term deposit accounts. On an average, the account balance for each individual comes to INR 2.75 lakh. Considering the interest rate to be 7.5%, on an average, every account holder will get an interest of INR 20, 000. Presently, investors need to pay INR 10,000 as TDS, out of this amount. The Finance Minister has proposed to increase the level of TDS to INR 40,000. For small depositors, this will come as a big relief. They can now make term deposits of up to INR 5 lakhs and stay free from paying the interests. In the coming years, the banks may witness an increment in investors going for term deposits.
Experts have also noted that one of the key factors that support equities has been the domestic flow, particularly in the last 18 to 24 months. They also say that this flow has been triggered by demonetization. That was announced back in November 2016. This made people lose their interest in fixed deposits. However, with the new rules coming into place, the investors are likely to make more investments. The experts have also stated that the proposed changes in the norms in the real estate sector, particularly in reinvestments of capital gains from notional rental income from second properties will lead to increased popularity of this asset class. Besides, the real estate players will also be beneficial in the process, which will help the firms increase the pricing. The tax on notional rent obtained from real estate that remains unsold will now be levied two years. Previously, this mark was fixed at one year. Presently, a group of ministers will be discussing the measures, that can reduce the burden of GST on the property buyers. In the coming years, the real estate industry will have great offerings for the investors.
