1. Interest earned on bank deposits is subject to tax deducted at source (TDS)u/s 194A if the total interest amount in a financial year exceeds Rs 10,000. However this amount is increased to Rs 50,000 if the payee is Senior Citizen wef 01.04.2018.
2. Interest earned on term deposits is subject to TDS . Term deposits here means both fixed deposit and recurring deposit.
3. Even if a customer has multiple deposits, the interest earned will be aggregated and subjected to TDS if the threshold level is crossed.
4. TDS is deducted at rate of 10%. However in case the payee does not furnish its PAN to the payer the rate of deduction shall be 20%.
5. Until 31st May, 2015, the threshold limit was computed with reference to the income credited/paid by a branch of the banking company or co-operative society, as applicable. W.e.f. 1st June 2015, the computation of interest income for the purposes of deduction of tax under section 194A should be made with reference to the income credited/paid by the banking company or the co-operative society or the public company (i.e. all branches) which has adopted core banking solutions.
6. The deductee can however opt for lower/non deduction of TDS.
Application for lower deduction under section 197: The deductee can make an application in Form No. 13 to the assessing officer to get a certificate authorizing the deductor to deduct tax at a lower rate or no tax as appropriate. However having PAN is mandatory to file application u/s 197.The certificate shall be issued, directly to the person responsible for paying income, on a plain paper, under an advice to the applicant. The certificate cannot be issued with retrospective effect. The recipient may furnish copy of such certificate to the person responsible for paying the income for lower/no deduction of tax at source.
Declaration is submitted in form 15G/15H u/s 197A: If a declaration is submitted u/s 197A by the recipient to the payer along with his/her PAN, then no tax is deductible if the following conditions are satisfied:
1) Recipient is a person other than a company/firm
2) Tax on total income of the previous year (PY) is nil
3) Total income does not exceed the exemption limit (i.e. for AY 2019-20, Rs.2,50,000 or Rs.3,00,000 or Rs.5,00,000, as applicable). This condition is not applicable if the recipient is a resident senior citizen.
Such a declaration shall be given in duplicate in form 15G (15H for senior citizens). In case of Senior Citizens Saving Scheme, 2004 (SCSS), investors can submit the declaration. Nominees of investors of SCSS can also produce the declaration at the time of payment after the death of the depositor. On submission of declaration to the bank, bank shall not deduct tax (subject to the conditions) on payment of interest.
7. TDS is applicable on the entire interest income if it is more than Rs 10,000/50000in a financial year, and not on the extent to which the interest income exceeds Rs 10,000/50000.
8. Interest earned on savings account balances is not subjected to TDS.
(Republished With Amendments)