No doubt, investing in bank fixed deposits has been one of the most popular investments in India. However, how many of these bank investors precisely know about the ‘taxability of the return’ on their investment. In this context, this write-up comes handy on taxability of interest income on bank fixed deposits.
Section 194Aof the Income-tax Act, 1961 is relevant here. If the amount of interest earned
on fixed deposits (FD) is more than Rs 10,000 a financial year, then TDS (tax
deducted at source) will be deducted at the rate of 10%. However, if the
depositor fails to provide his PAN (permanent account number) then tax will be
deducted at the rate of 20% under section 206AA. With effect from 1.6.2015,
even recurring deposits (RD) are also treated at par with ‘term deposits’.
(V S Vadivel FCA ACS Chartered Accountant)
For this purpose, TDS shall be applied after computing all the deposits across branches of a bank. Upto 31.05.2015, it was applicable only on a single branch. In other words, if the aggregate interest on RD or FD made by a depositor in one or more branches of the same bank exceeds Rs 10,000 in a financial year, then TDS will be deducted.
As an alternative, the depositor may submit Form 15G or 15H with the banker. In such case, he can simply avoid TDS from being deducted on his interest income. This is however possible only if the depositor’s taxable income is less than the total exempted income (Rs 2.5 lakh) in a year and his tax liability is nil for the year. In case the depositor fails to submit Form 15G or 15H, he has to file his ITR to claim ‘refunds’, if any. All legal compliances on the part of depositor will not stop with deduction of TDS by bank.
Even after bank has deducted TDS, depositor has to declare his interest income in income tax return. In other words, interest income shall be taxable as per the depositor’s tax slab, as may be applicable. Though the banks deduct TDS at the rate of 10%, the depositor may have to pay the ‘extra tax’ (while filing ITR), if he falls under higher tax bracket.
*(Mr V S Vadivel FCA ACS is an eminent Chartered Accountant, notable author, socio-economic thinker and unique academician from India.He can be reached at Mob: 9840264527; e-mail: firstname.lastname@example.org )