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This story is from April 3, 2019
Fixed Deposits: How to check and verify TDS on your FDs
Fixed Deposits: The bank FDs have lower risk vis-à-vis other investment option available to an individual taxpayer and this also offers a fixed rate of return.
Knowledge Partner: Grant Thornton Bharat
One of the popular investment options for many individual taxpayers is the interest-bearing Fixed deposits (FDs) held with the banks. The bank FDs have lower risk vis-à-vis other investment option available to an individual taxpayer and this also offers a fixed rate of return. Apart from the secured returns, the bank also offers tax saving FDs with minimum tenure of 5 years, wherein the annual principal invested up to Rs 150,000 is eligible for deduction under Section 80C of the Income-tax Act, 1961 (the Act).There is an option with the individual to select the interest payment mode i.e. monthly or quarterly or annually or reinvestment of the interest along with the principal amount.
The interest earned on the FDs is taxable in the hands of individual. Where the amount of annual interest credited exceeds Rs 40,000 (Rs 50,000 in case of senior citizen, i.e aged 60 or above during the financial year) the bank is required to carry out ‘Tax Deduction at Source’ (TDS) on such interest income. The TDS is carried out at @ 10% under section 194A of the Act on the interest credited to the individual.
In case the deductee fails to furnish his Permanent Account Number (PAN), the rate of TDS rate would be 20%. In case of interest income received by Non-residents, TDS would be carried out at the flat rate of 30% plus health and education cess @ 4%.
While filing the tax return by the Individuals, it is important to declare the interest income earned on FDs as taxable income. Further, the individual can take credit of TDS deducted by the bank against the total tax liability.
An individual taxpayer can verify the amount of TDS deducted by the bank and deposited with the government in the following two ways:
One of the popular investment options for many individual taxpayers is the interest-bearing Fixed deposits (FDs) held with the banks. The bank FDs have lower risk vis-à-vis other investment option available to an individual taxpayer and this also offers a fixed rate of return. Apart from the secured returns, the bank also offers tax saving FDs with minimum tenure of 5 years, wherein the annual principal invested up to Rs 150,000 is eligible for deduction under Section 80C of the Income-tax Act, 1961 (the Act).There is an option with the individual to select the interest payment mode i.e. monthly or quarterly or annually or reinvestment of the interest along with the principal amount.
Taxability of interest earned on FDs
The interest earned on the FDs is taxable in the hands of individual. Where the amount of annual interest credited exceeds Rs 40,000 (Rs 50,000 in case of senior citizen, i.e aged 60 or above during the financial year) the bank is required to carry out ‘Tax Deduction at Source’ (TDS) on such interest income. The TDS is carried out at @ 10% under section 194A of the Act on the interest credited to the individual.
As per the mechanism for TDS under the Act, a person (deductor) paying specified income to another person (deductee) is required to deduct a certain percentage of the said income as tax and deposit it with the government. The deductee is entitled to avail a credit against his total tax liability in the tax return.
In case the deductee fails to furnish his Permanent Account Number (PAN), the rate of TDS rate would be 20%. In case of interest income received by Non-residents, TDS would be carried out at the flat rate of 30% plus health and education cess @ 4%.
While filing the tax return by the Individuals, it is important to declare the interest income earned on FDs as taxable income. Further, the individual can take credit of TDS deducted by the bank against the total tax liability.
An individual taxpayer can verify the amount of TDS deducted by the bank and deposited with the government in the following two ways:
Form 16A issued by the bank
- Form 16A is the certificate for deduction of tax at source issued by the deductor to the deductee. The Form 16A contains details such as name and address of the deductor, Permanent Account Number (PAN) /Tax Deduction Account Number (TAN) of the deductor, PAN of deductee, details of interest paid, details of Tax deducted and deposited with the government, etc. The Form 16A is required to be issued on a quarterly basis within 15 days from the due date of filing of quarterly TDS returns. The due date to file quarterly TDS returns for the first three quarters of the financial year is 31st of the month following the quarter. In case of the forth quarter (Jan to March of the financial year), the due date is 31st May unless extended by the government considering special circumstances.
- One can determine the TDS amount deducted by the bank on
FD interest from Form 16A. It serves as a valid proof of deduction of TDS by the deductor.
Form 26AS
Form 26AS is a statement that provides all tax related details of an individual taxpayer such as TDS, tax collected at source (TCS), advance tax, self-assessment tax, income tax refunds, etc.- Form 26AS is available on the TRACES portal and can be downloaded by the individual taxpayers through login to income tax e-filing portal. One can verify the amount of taxes withheld on FD interest from there.
- It is also worth noting that in case a resident individual's income is below the taxable limit, they can apply for a waiver of TDS on interest earned on FDs by submitting Form 15G (15H in case of senior citizens), at the beginning of the financial year.
End of Article
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