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How to Avoid TDS  Deduction by Banks - HOT TIPS FOR TDS in Banks

by

Rajesh Goyal 

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  • (A) Tax Exemption :  For FY 2014-15 ,  interest earned upto Rs 10,000 in saving bank accounts has been exempted from Tax.    However, interest income  from other kind of deposits (like from  term deposits / fixed deposits /  recurring deposits ) are not now  exempted from tax.  Thus, feel free to keep to keep upto Rs 2 lakhs in Saving Bank accounts as most of the banks pay 4% interest in saving bank accounts.  Even if you keep high amount in Saving Bank account, there will be no deduction of TDS but you will need to pay tax for the interest earning in Saving Bank accounts for the amount over Rs 10,000/-

  • (B) Deduction of TDS  : No TDS is deducted by banks on interest earned in Saving Bank accounts and Recurring Deposit accounts.  Interest on fixed deposits is subject to deduction of tax as per rules.   However,   income from interest accrued / paid (on Saving and Recurring Deposits)  are taxable, (except as explained above, from FY 2012-13, interest income upto Rs10,000/- earned on Saving Bank deposits has been exempted from income tax].    You should remember no interest income from fixed deposits or recurring deposits  is exempted from income tax.    As explained above, TDS is deductible on interest earned on Fixed Deposits / Term deposits.   However, in certain conditions, no TDS  is deducted even on the interest earned on fixed deposits, e.g. (a) if the total interest earned on such deposit in a financial year is upto Rs.10,000/-.     Remember, that even if  No TDS is deducted on your fixed deposit interest earned, you still have to include this income in your tax return and pay tax. 

  • (C) Rules for Deduction of TDS on interest paid / accrued :   As per present income tax guidelines,  banks are required to deduct tax at source (TDS) on deposits if  the total interest earned on all your fixed deposits in a bank (at all branches of the bank) is more  than Rs.10,000 in a financial year. (as per these guidelines even if a fixed deposit is in the name of a minor  TDS is deducted).  However, the depositors can claim the credit for such TDS in their income tax returns. (Now a days such deducted TDS is reflected in AS26 which can be downloaded from income tax site.    (in case of minors, this credit for TDS can be claimed by the person who manages the minor's income).

  • Remember, now a days  as and when a bank pays an interest on the fixed deposits, it checks whether the account is exempted from TDS.   If it is not exempted, then TDS is deducted.  You should also remember that  TDS is deducted even on interest accrued (but not yet paid) at the end of the financial year i.e. 31st March every year. 

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  • (D) In case of resident individual and HUF, for a payments upto Rs. 10 lacs, TDS is  deducted at a rate of 10%.   

(E)  Now a days, TDS is deduced at applicable rate OR 20% whichever is higher is deducted where PAN is not registered with Bank.  Some banks have made PAN compulsory for opening of fixed deposits exceeding Rs.50,000/-
 

(F)  If you feel  that your total interest income for the year will not fall within overall taxable limits, then you should inform your bank and request not to deduct TDS on deposit, by submitting a form as per the provisions of the Income Tax Act. The forms required for different categories have been listed below:

 

 

Category of Account

Form Required

Individual

15H

Trusts

15AA

 

  • Remember that : -

  • (a) You have to obtain 15AA Form from the Assessing Officer of Income Tax department.

  • (b) Even if you submit the 15H / 15AA Form, the tax which has already been deducted by way of TDS during the year prior to submission of 15H Form, is usually  not refunded by the bank as they are under obligation to deposit this TDS within a time bound period.  . However this TDS certificates will be issued to the customers which  he / she can  use while filing his/her tax return and get credit for the same.

  • (c) 15H/15AA Forms are valid only for the particular financial year in which they are issued.

  • (d) In view of above, usually banks ask that a  fresh15H form is needed  to be furnished for each deposit that is placed with the Bank

  • (e) However, if the depositor furnishes form 15H (which is available free of cost from all banks) and therein declares he / she does not have tax liability at all, the bank will not deduct any TDS from the interest earned by the depositor.

  • (f) Thus, the above, in a nutshell indicates that if the interest income from a bank branch is more than Rs.10,000/- (and you have not submitted form 15H), the Bank will deduct the TDS.  For any TDS deducted by the bank, it will issue a Form 16A which can be used  while filing the income tax returns.   Such TDS is also reflected in the AS26 form which can be generated from income tax website.

  • (g) Thus, in case you do not want the TDS to be deducted, you can split your Bank Deposits in two or more  Banks so that the total interest earned at one Bank is less than Rs.10,000/-.  (However, remember this does not mean that income earned from such deposits is exempted from income tax.  You have to club all such interest income and add to your other income, and pay the tax while filing the income tax return.)

  • (h) People prefer to deposit their savings in fixed deposits as such deposits earn  higher rate of interest than normal savings account. However, they face the problem of TDS (Tax Deducted at Source) by banks for fixed deposits. 

     

    In Income Tax law, one of sources of the income is "Interest Income" and thus directions issued by income tax authorities have to be followed by all bankers. 

    What are the rules for deducting tax on fixed Deposit ? When do the bank deduct TDS on a fixed deposit? :

    Banks deduct tax (TDS), if the total interest earned on all your fixed deposits in the bank is greater than Rs.10,000/-  during a financial year.   The tax liability for the purpose of TDS was earlier determined at the branch level.   The bank branches used to check interest on your fixed deposits at a particular branch only as it was impossible to club the interest earned in other branches.   However, after introduction of CBS, now banks are able to club such interests at different branches if Customer ID / PAN  is same.     Thus, if interest earned on fixed deposits in different branches exceeds the threshold, the TDS will be deducted by the system.  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

     

  • Difference between form 15G and 15H   (Free Download form 15G)   (Free Download form 15H) : The form 15G and 15H are submitted to banks by depositors who DO NOT want that TDS be deducted from their interest earned on fixed deposits.  A person who is below 65 years can file the Form 15 G .  However, only a person of 65 years or more is eligible to file Form 15 H.    There are some other major issues relating to 15G and 15 H and the same are discussed below:-

(a) 15G CAN NOT BE  filed by any person who gets AGGREGATE income from Dividend or Interest or Interest other than Interest on securities or on Securities or withdrawal or surrender value of pension plan of insurance for which deduction u/s 80CCA was availed,

  • (b) exceeds Rs 1,00,000 (maximum exempt) ;    or
  • (c) tax on estimated total income including the income for which 15G is submitted of  is NOT nil.
 
In nutshell we can say that anybody whose tax on estimated income is not NIL or having income from interest or surrender value of pension plan above Rs 1,00,000/-,  can not file DECLARATION u/s 15G .This is clear from the point 3 & 4 of the of From 15 G .
 
However, if you are eligible and also fulfill the condition , the payer can not deduct the tax even if it is above  Rs. 10,000/-
 
Senior Citizen who are only eligible to file the Declaration in Form 15H has no such conditions .This form can be submitted by senior citizen only if  tax on estimated income of the senior citizen is NIl. This is clear from  point 4 of the form 15H, which reads as under:-
 
" 4. that the tax on my estimated total income, including *income/incomes referred to in the Schedule below computed in accordance with the provisions of the Income-tax Act, 1961, for the previous year ending on relevant to the assessment year _____________ will be nil"

 

Difference between Form 60 and Form 61   (Free Download form 60)   (Free Download form 61)

  • FORM NO. 60 :[See second proviso to rule 114B] :  Form of declaration to be filed by a person who does not have a permanent account number and who enters into any transaction specified in rule 114B.  Form of Declaration to be filed by a person who does not have either a Permanent Account Number or General Index Register Number and who makes payment in cash in respect of transactions  specified in clauses (a) to (h) of rule 114B

    FORM NO. 61: [See proviso to clause (a) of rule 114C(1)].  Form of declaration to be filed by a person who has agricultural income and is not in receipt of any other income chargeable to income-tax in respect of transactions specified rule 114B.  Form of Declaration to be filed by a person who has agricultural income and is not in receipt of any other income chargeable to income tax in respect of transactions specified in clauses (a) to (h) of rule 114B

     

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