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 TDS will be deducted on your interest Income and when you will get your interest without deduction of TDS.
Interest Income on which deduction of TDS is not applicable
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 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.
Interest Income on which TDS is not deductible upto a certain 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%. However wef 01.04.2018 this limit of Rs 10,000 has been increased to Rs 50,000 only if the payee is senior citizen.
When TDS may be deducted at higher rates or nil rates on Interest Income
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. 15G 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.
Author is tax and investment expert and can be reached at jainbalwant@gmail.com @jainbalwant
(Republished with amendments)
Author Bio
If my interest income is Rs.2,20,000/-, should I need to pay tax. If so @ what rate. I have no other income.
I need a calculator which gives me interest calculation on KVP purchased after 2016 to 2020
I have a FD for 2yrs(12thJuly 2014-12th July2016) and I will earn Rs30000/- interest at the end of maturity. If I will not submit Form15G,I want to know whether the interest earn will be taxed during FY2015-16(Rs15000/-)and FY(2016-17) Rs15000/- or it will be taxed during FY 2016-17 Rs30000/.
I want to share with you that that if I am a shareholder of a cooperative bank and having one share of the bank and i want to invest a FDR in the particular bank. They will deduct our tax or not. They told that being the members of the coop bank, the bank will not deduct any tds from their part and give me the full maturity amount. Is it clear in Income Tax Act or not.
Dear Sir,
Is income from FD of cooperative banks(holding shares too) exempt from Income tax and if so under which sub section of section 10?
Thanks,
Sir,
During the year 2013-2014. I have earned Rs 6127/- as interest from my saving account and Rs 49547/- from FDs in bank. Rs 5501/- has been deducted at source by the bank. Please tell me how much more tax is to be deposited by me? I fall under the 30% tax slab.
Thanks
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.
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.
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
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,
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.
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
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.
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.
Agree with Rahul Krishna. TDS is not deductible where the Bond/NCD is held in Demat.
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 ?
Good write up. Keep it up.
CA.Subhash Chandra Podder ,FCA
Kolkata
12/09/2012
Dear Sir,
TDS is also not deductible on BONDS/NCD’s etc held in Demat form.
Regards.