The budget has given bank FDs, realty an edge over equity: Here’s how

The Interim Budget proposal to hike tax deducted at source (TDS) limit on interest earned is likely to make bank deposits attractive, which can even take some sheen off equities and mutual funds, states analysts. Real estate investment may also pick up following the Budget sops, they alleged

Among many popular announcements created in the Interim Budget 2019, Finance Minister Piyush Goyal proposed to raise the TDS limit on interest earned on bank deposits/post office deposits under Section 194A of Income-Tax Act to Rs 40,000 from Rs 10,000 currently.

This will incentive investors to put money in bank deposits, states SBI’s Economic Wing.

It confirmed that the hike in TDS limit was a long-pending demand. Many investors could benefit from this announcement. There were 23.9 crore term deposit accounts in banks as of March 2018, with an average per account balance at Rs 2.75 lakh, the bank said.

“Assuming 7.5 percent rate of interest, on an average every term deposit holders would accrue interest income of Rs 20,000, out of which an investor at present has to pay TDS on Rs 10,000. Now, the FM proposes to raise the limit for TDS on interest income to Rs 40,000. This will provide a big relief to small depositors and they may escape tax on term deposits up to Rs 5 lakh. Banks may see a surge in term deposits going forward,” the bank stated.

Nirmal Bang Institutional Equities noted that domestic flows have been a key factor in helping equities in the last 18-24 months. What triggered those flows, it said, was the demonetization drive announced in November 2016. The cash ban led to real estate and fixed income losing charm as investment classes.

“However, the proposal to raise the TDS threshold on interest income earned to Rs 40,000 from Rs 10,000 could incrementally make fixed income more attractive, especially as the trailing 12-month return in most equity mutual funds has been unexciting,” the brokerage stated.

Sensex delivered 1.60 percent return in last one year, while the biggest state-run lender SBI offered 6.80 percent return on deposits of 1 year to less than 2 years.

Nirmal Bang stated the changes proposed in the rules for the real estate sector, especially in terms of reinvestment of capital gains from property and notional rental income from second property make this asset class also incrementally more attractive.

“Real estate players have also been given sops, which could help firm up pricing,” it stated

The FM said a tax on notional rent on unsold real estate inventory will now be levied after two years against one year. The exempted notional rent is applicable to the second self-occupied house too.

The threshold limit for TDS on rental income has been increased to Rs 2.4 lakh per annum from Rs 1.8 lakh per annum previously. Capital gains limit u/s 54 has been raised to Rs 2 crore and it will now be available for two residential houses instead of one earlier.

Besides, a group of ministers has been set up to discuss measures to reduce the GST burden on home buyers.


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