Fixed Deposits and Tax

Fixed Deposit(FD) is an investment product which allows you to invest a lump of money for a fixed time period and at a fixed rate of interest. It is quite popular form of investing in India.

Overview of Fixed Deposits as the name suggests give an overview of Fixed Deposits, while Fixed Deposit and Interest Rates discussed the interest rates in FDs.

When you open a fixed deposit with bank then you are lending money to the bank and it pays you interest. Applicable interest rates will be given as on the date of receipt of the funds by the bank and is fixed for the specified duration. And interest that is earned on fixed deposits is taxable in the hands of the depositor.  Tax or TDS is deducted by the bank, after a threshold. This article throws light on Taxation aspect of Fixed Deposits.

 

Tax Deducted At Source or TDS

 

If the aggregate interest income from fixed deposit that you are likely to earn for all your deposits held in all branches(before 1 June 2015 it was per branch) is greater than Rs 10,000 in a financial year, you become liable for TDS. TDS is deducted every time the Bank pays interest during the financial year and the interest earned for the year is more than Rs 10,000 in a single branch . in all the branches of bank from 1 June 2015.

In addition, TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year.For example, if an investor has earned Rs 20000 as an interest in one year, then the bank would deduct Rs 2000 and pay only Rs 18000 as the amount exceeds the limitation of Rs 10000.

 

A consolidated TDS Certificate in Form 16A, for TDS deducted during a financial year will be issued in the month of April of the following financial year. TDS Certificate shall specify valid Permanent Account Number (PAN) of the deductee, valid Tax Deduction Number (TAN) of the branch, Challan identification Number and receipt No of the quarterly statement. Challan identification Number means BSR code of the branch where tax has been deposited, date on which deposited and challan serial number given by the bank.

[Source: http://www.bemoneyaware.com/blog/fixed-deposits-and-tax/]