Complete guide to TDS on fixed deposits in India
Fixed deposits earn a higher rate of interest than regular savings account. Interest is also a source of income and hence is governed by the income tax laws of India. The income tax authorities give direction to banks and financial institution issuing fixed deposits to deduct the income tax at source on fixed deposits if they qualify.
When do the bank deduct TDS on a fixed deposit?
If the total interest earned on all your fixed deposits in a bank is greater than Rs. 10,000 in a financial year, you are liable for TDS and the banks will deduct the income tax at source. The tax liability for the purpose of TDS is determined at the branch level. Even if a fixed deposit is in the name of a minor it will attract TDS and in this case the credit for TDS can be claimed by a person managing the minor's income. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year.
The rate at which TDS is deducted varies according to the category of account holders.
TDS rates for a fixed deposit held by resident individual and HUF
If the fixed deposit holder is a resident individual and HUF, for a payment of up to 10 lacs, TDS will be deducted at a rate of 10% in addition to it there is an education cess of 3% which takes the total deduction to 10.3%. For a fixed deposit of resident individual or HUF with payments equal to 10 lacs or more the TDS rate is 10%, in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 11.3%
TDS rates for a fixed deposit held by corporate body
If the fixed deposit holder corporate body, for a payment of up to 1 crore TDS will be deducted at a rate of 20% plus an education cess of 3% which takes the total deduction to 20.6%. For a fixed deposit of corporate body with payments equal to 1 crore or more the TDS rate is 20% in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 22.6%
Effect of change in fixed deposit portfolio on TDS
Any change or enhancement in fixed deposit portfolio affects the TDS liability. If your changed portfolio earns a interest which falls under the ambit of income tax laws, you will be liable for TDS on your current portfolio. In case the interest on your current portfolio is not sufficient enough to cover the TDS, it will be deducted from the principal amount.
What to do if you think that your TDS on fixed deposit is exempted?
If a fixed deposit holder finds that his total interest income from fixed deposits won't fall within the overall taxable limits, he should immediately inform this to the concerned bank and ask them not to deduct the TDS from his fixed deposit account. This can be done by submitting a form as per Income tax regulations. Individuals, claiming such exemption have to submit form 15H, companies form 15AA, association of companies form 15AA and trusts must provide details in form 15AA. The form 15AA can be obtained from the assessing officer of the income tax department. In case there is an amount deducted by way of TDS on the interest earned on you fixed deposit, prior to your submission of application of exemption with the required documents, it won't be refunded. However, in all such cases banks will issue TDS certificates which can be used by the fixed deposit holders, while filing his income tax. If you open a fresh fixed deposit account with the bank and want exemption you will have to submit details in a new form. The older one submitted for an existing fixed deposit will not suffice.
For any TDS deducted by the bank, it will issue a Form 16A which can be used to substantiate the facts, while filing the income tax returns.
Remember, that any exemptions claimed don't help you save tax, since in your final Income Tax Return you would end up paying the tax with possibly interest penalties.
1 comments:
Is there any limit for the bank to accept form 15g/H. That is whether one can submit the form for non deduction of tax by the bank irrespective of the interest being earned on deposit. Say I am earning interest of 2.5 lakhs on my Term deposit, can I submit 15 G/H, whether bank can reject it.
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