HOT TIPS FOR TDS (TAX DEDUCTED AT SOURCE) ON BANK DEPOSITS / INTEREST EARNED ON  BANK DEPOSITS

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HOT TIPS FOR TDS  INTEREST ON BANK DEPOSITS

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 is determined at the branch level.   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

 

  • At present NO interest income is exempted from tax  (earlier interest  income upto Rs.12,000/- per year was exempted  under Section 80L of the Income Tax Act).  However, in certain conditions, no TDS  is deducted on the interest earned on fixed deposits, e.g. (a) if the total interest earned on the deposit in a financial year is upto Rs.10,000/-.
  • 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 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.  (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.
  • In case of resident individual and HUF, for a payments upto Rs. 10 lacs, TDS is  deducted at a rate of 10% plus education cess of 3% (thus total deduction is at the rate of 10.3%).   However, for  resident individual or HUF with interest payments equal to Rs.10 lacs or more,  the TDS rate is 10%, plus surcharge of 10% and educational cess of 3% (thus total deduction is at the rate of 11.33%).  Thus, the  present applicable rates are : -
  •  
  • Resident Individuals & HUF Tax Rate Surcharge Education Cess TOTAL
    Payment upto 10 lacs 10% ---- 3% 10.30%
    Payment equal to & above 10 lacs 10% 10% 3% 11.33%
  • If one feels  that your total interest income for the year will not fall within overall taxable limits, then one should inform his / her  bank 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 ban as they are under obligation to deposit this TDS within a time bound period.  . However Certificates will be issued to the customers which can be used while filing his/her tax return.
  • 15H/15AA Forms are valid only for the particular financial year in which they are issued.
  • Usually banks ask that a  fresh15H form is needed  to be furnished for each deposit that is placed with the Bank
    		•
  • 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.
  • 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.  
  • Thus, in case you do not want the TDS to be deducted, you can split your Bank Deposits in two or more  Banks or branches so that the total interest earned at one branch 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.)

 Difference between form 15G and 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 .However, this is not the only difference, but some other major issues relating to 15G and 15 H. are discussed below:-
 

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,

  • exceeds Rs 1,00,000 (maximum exempt) ;    or
  • 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 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 t 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

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