• Sep
  • 12
  • 2012

Tax deduction on Interest income

Balwant Jain,  CFO, Apnapaisa.com

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.

ApnaPaisa is India’s leading Online market place for financial products such as loans, credit cards and insurance plans. Author can be reached at www.facebook.com/apnapaisa.

Sandeep Kanoi

12 Responses to “Tax deduction on Interest income”

  1. Surya says:

    Hi BISWESWAR GHOSH,

    4th interest portion will be from 02/02/14 to 31/03/14. TDS will be calculated even it is not paid and bank can pay it in May or Jun15 month. Once it is calculated then it will not be repeated in 2014-15. so only remaining interest portion(6906.25 – 4th interest till 31st March 14) will be applicable for 2014-15. so u have to pay remaining tax(20.9% or 10.6%) for the 4th interest amount which is still not paid to your account.

  2. BISWESWAR GHOSH says:

    I have FDR with Bank under Quarterly Interest Repayment Scheme. A/c opened on 02/05/2013 and Qly Interest paid on 1st, 2nd and 3rd Qrs falling on 02-Aug-2013, 02-Nov-2013 and 02-Feb-2014. The 4th Qr. Intt payment is due on 02-May-2014. Now Bank issued statement of payment of Interest during the FY 2013-14 as follows:
    Qr Dt. Transaction Interest Paid / Provided TDS
    1 02/08/13 6906.25
    2 02/11/13 6906.25
    3 02/02/14 6906.25
    4. 25/03/14 4529.91
    Obviously the last item is the calculation for the broken period from 02/02/14 to 25/03/14. If I include all in FY 13-14, then in the Bank Statement of FY14-15 the item No. 4 will be repeated. What is the method of accounting for the broken period where interest is no actually due and not paid but the Bank statement shows merely provision made by the Bank in their Books of Accounts for the purpose of absolute P&L liablility for them to meet with. Pls advise whether I can exclude the item no. 4 on the ground that the apportioned interest calculated for a broken period is not due for payment nor has been paid within the current financial year i.e. 2013-14.

  3. vilas bairagi says:

    Sir,

    An employee who deposited 36 Lakhs in 4 bank ( 9 Lakhs each)

    the interest received on above investment in 4 banks will be taxable or

    exempt. Pl clarify

    regards,
    V.M.Bairagi

  4. P B Nath says:

    Sir,
    I am a Sr ctzn.To avoid tds I furnish 15H to my bank in April every year.I want to know whether I have to furnish 15H again in case one of the FDs reqd to renew in mid of the said FY?orthe old 15H already furnished in the said FY will serve the purpose

    regards,

  5. Surya says:

    How to pay advance tax in below scenarios?
    1. I sold some shares on 10th May of 40000/- and 60000/- on 25th September. So how much advance tax i should pay on 15th September and how much on 15th December.(tax liability is 30%)
    2. In second case I have auto sweep salary account, so by default amounts in my account are moving to auto Fixed deposit and when i withdraw(break the FD) i am getting the interest. So i think for that also i have to pay advance tax if taxable amount is more than 10000/- from Fixed deposit. but i cannot estimate total interest value from Fixed deposit for whole year. so how to pay advance tax on 15th September and 15th December.

  6. SANJAY SHARMA says:

    I HAVE A QUERY, WE ARE BODY OF INDIVIDUALS AND HAVE FORMED A CO-OP CREDIT SOC WITHIN OUR COMPANY, WE HAD MADE AN FIXED DEPOSIT WITH BANK FOR RS 200000/- TDS WAS DEDUCTED BY BANK @ 20% AS OUR SOCIETY DIDN’T HAD PAN CARD, NOW WE HAVE PAN CARD, CAN WE GIVE FORM 15G FOR NON DEDUCTION OF TDS ON INTEREST EARNED BY US ON FIXED DEPOSIT,

    KINDLY MAIL ME YOUR ANSWER ON MY MAIL ID- birth4373@rediffmail.com

  7. Divya says:

    Dear Sir,

    Plz advise if a Govt undertaking organization (not wholly owned by Govt.) has an FD with a bank, is it that no TDS can be deducted on the interest income (any amount) earned by the organization. If no TDS has to be deducted, could you plz advise which section of IT Act rules this statement.

  8. pankaj kumar, Anpara says:

    dear sir.
    please advice me if the interest amount exceed Rs 10,000/- and i submit 15g/15h, what will happen that inerest amount is equal to Rs 1,60,000/-,TDS is deductible ?

    Regards.

  9. SK says:

    Agree with Rahul Krishna. TDS is not deductible where the Bond/NCD is held in Demat.

  10. ganesh says:

    What will happen if a person earns an interest of rs 20000 from a single branch of bank, Is this income is liable to pay tax ?

  11. CA.Subhash Chandra Podder says:

    Good write up. Keep it up.
    CA.Subhash Chandra Podder ,FCA
    Kolkata
    12/09/2012

  12. RAHUL KRISHNA AGARWAL says:

    Dear Sir,
    TDS is also not deductible on BONDS/NCD’s etc held in Demat form.
    Regards.

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