Many of us keep our money either with banks or with cooperative credit societies, be it in fixed deposits or recurring deposits or in saving accounts. Not only this, we also invest in various Government run schemes like NSC, PPF and Senior Citizen Saving schemes. While making these investments everyone wants to plan these investments in such a manner so that no TDS (Tax Deducted at Source) is effected on our interest income.
In this article I shall discuss the various provisions related with TDS as applicable to an individual on such interest income which can help you understand when tax will be deducted and when you will get your interest without deduction of TDS.
- No deduction of tax on interest income without any limit
As per the provisions of Income Tax Act, there are certain investments/deposits on which no tax is required to be deducted whatever be the amount of such interest. So tax is not deducted on any interest on savings account whether of a bank, or a Co-operative credit society or even a Cooperative bank. Even in case of a cooperative society interest paid to its share holders is free from the clutches of TDS provisions and the Cooperative society does not have to deduct TDS whatever be the quantum of interest. In addition to the above no TDS is required to be deducted by the post office on any interest paid on any deposit with post office like saving accounts, recurring deposits, fixed deposits or monthly scheme schemes. Likewise TDS is not applicable on various saving certificates like Kisan Vikas Patra and Indira Vikas Patra. Since interest on PPF account is exempt from tax, hence it is also not subject to any TDS.
- No deduction of Tax upto a limit
In addition to the above items where TDS is not required to be deducted, there are other items where TDS provisions becomes once the aggregate limit crosses certain limit. For all the fixed deposit with banks, Credit societies, Cooperative banks etc., the payer will deduct tax at source if the income from such fixed deposit exceeds a limit of Rs. 10,000. Please note that the limit of Rs. 10,000 shall be calculated with reference to aggregate of all the fixed deposits made with the all the branches of a bank in case the bank is covered under Core banking otherwise it will be applicable to all the deposits with a branch even if in the same city. Please note that though no tax is required to be deducted on various deposits with post office or various saving certificates without any ceiling, but there is one exception. In case interest on Senior Citizen Saving Scheme exceeds Rs. 10,000 in a year, the bank or post office will deduct TDS at the rate of 10%. However if the deposit is with a party other than a bank or cooperative society or any scheme of the government, the upper ceiling is Rs. 5000/- per year in stead of Rs. 10,000/- per year.
- TDS at higher rates or nil rates
Though the rate of TDS is 10% on such interest, the law provides that a person can submit form No. 15 G or 15H for payment of such interest without any TDS if he satisfies certain conditions. In such cases the bank can pay you interest without deducting any tax from your interest even if the same exceeds the ceiling of Rs. 10,000.
One very important aspect which one needs to keep in mind is that even if you are fine with tax being deducted by the bank from interest being paid to you, still you have to furnish your PAN number to the bank. If you fail to furnish the PAN number, the bank shall deduct tax at the rate of 20% instead of 10% generally applicable.
Even when you are eligible to furnish either form No. 15G or 15 H, you should furnish your PAN number to the bank. If you fail to mention your PAN number in the form no. 15G or 15H, the bank is obliged to deduct tax at the rate of 20%. So instead of receiving interest without TDS, you will be subjected to TDS at the rate of 20%. Please ensure the correctness of the PAN number when you communicate the same to the bank. If the PAN number mentioned by you is found to be incorrect, the bank will be obliged to deduct tax at the rate of 20% and you can be subjected to a penalty of Rs. 10,000/-.
I am sure by now you have become aware of the intricacies of the TDS provisions as applicable to interest, thus you can plan your investment in such a way so as to minimize the incidence of TDS and escape from the hassle of having to claim the refund in case your income is below taxable limit or in cases when you want to receive the income without TDS legitimately for any reason.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)