Balwant Jain

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 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 without any limit of the amount of such interest.  Tax is not deducted on any interest paid on any savings account or deposit in any of your recurring deposit account, be it with any bank, or Co-operative credit society or Cooperative bank. Even in case of any cooperative society any interest paid to its share holders, the Cooperative society does not have to deduct any 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 no TDS is 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 not subject to any TDS.

No deduction of Tax upto a limit

Unlike the benefits of no TDS without any limit available on the accounts and schemes discussed above,  the Income Tax Act provides the benefit of no deduction of tax at source when the income is within a 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 interest on aggregate of all the fixed deposits made with the bank. However while calculating the limit of Rs.10,000, each branch shall be treated separately.  So if you earn interest less than Rs. 10,000 from each branch of the same bank though your overall interest on fixed deposit maybe higher than the limit of Rs. 10,000, no tax will be deducted by any of the branch.   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%.

TDS at higher rates or nil rates

Though the rate of TDS is 10% on such interest income, the Income tax Act provides that a person who is entitled to receive such interest  which is subject to TDS can submit form No. 15 G or 15H for no deduction of tax at source. 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, even in such case 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 in the case where 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 will 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%

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.

(Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. He can be reached at

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