Withholding tax on interest income

Monday, 3 November 2014 00:00 - - {{hitsCtrl.values.hits}}

At present the Interest Income for an individual fro

m Banks, Financial Institutions etc, is liable for withholding tax on the following basis: a).If the total income (employment, trade, profession, interest etc.) but excluding interest from Treasury Bills is less than Rs. 500,000 per annum, it is exempted. b).If it exceeds Rs. 500,000 but is less than Rs. 1,500,000 per annum, it is liable at 2.5%. c).If it exceeds Rs. 1,500,000 it is liable at 8%. d).In the case of senior citizens (more than 59 years as at 1 April of the year of assessment), interest from deposits made in state banks (National Savings Bank, Bank of Ceylon, People’s Bank etc.) up to Rs. 500,000 is exempt. This means that senior citizens have relief of untaxed interest up to Rs. 1,000,000 and others up to Rs. 500,000. Interest Income of Treasury Bill is totally excluded. It is noteworthy that with effect from 1 April 2015, the entire interest income on deposits with state banks of senior citizens will be exempted. In addition, it is proposed to give senior citizens 12% interest on deposits made with the state banks. However w.e.f 1 April 2015, the entire interest income of others is liable for withholding tax at 2.5% i.e. the concession of Rs. 500,000 relief with no withholding tax is withdrawn. This would be an unfair burden on small income earners. Already interest rates are very low - less than 7% - (TB rate is 6%). In addition if they have to pay 2.5% withholding tax on the interest it will deplete their income further. Therefore, it is suggested that the present exemption limit of Rs.500, 000, which covers only the statutory allowance of an individual, be kept unchanged. It is true that those who receive interest income more than Rs.1,500,000 benefit from the Budget Proposal. However, it should be understood that the low income group who receive less than a Rs. 500,000 annual income is much more than the group that earns over Rs. 1,500,000 annual income. The current statutory allowance of Rs. 500, 000 is denied to the low income group by introducing the withholding tax of 2-1/2% on all interest paid on deposits. It is the duty of the Government to look after the low income group and grant proper relief to maintain a balanced income level. It is better to have a discussion with the relevant organisations carefully and grant this relief to the low income group. S.R. Balachandran (BSc. FCA, FCMA (Sri Lanka)) from Wellawatte

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