Fixed deposits (FDs) have been a popular investment option for decades. Interest income from bank fixed deposits is fully taxable. It comes as ‘income from other sources’. In many cases taxpayers make a mistake in disclosing the interest income. Due to this, notice of tax department comes.
What are the rules?
Banks are required to deduct tax at source on FD interest. If your income is less than the adjusted limit, then you do not have to pay TDS on the interest received. Banks deduct TDS at the rate of 10 percent. TDS is deducted at the rate of 20 percent if there is no PAN.
How Can TDS Be Avoided?
You have to tell the bank that your income tax limit is less than 2.5 lakh rupees. In the case of people who are more than 60 years of age but less than 80 years, income tax of up to Rs 3 lakh comes under the exemption limit. For a person who is more than 80 years of age, there is no tax on income up to Rs 5 lakh. This is why there are two types of forms. One is Form 15G which is for people up to 60 years of age. The second is Form 15H which is for people over 60 years of age.
Where should the income be shown?
The depositor has the option of showing his interest income in ITR with ‘Year of Acreal’ and ‘Year of Receipt’. Tax experts say that it would be better to show FD interest in the year of accrual.
When do banks deduct TDS?
Banks deduct TDS at the rate of 10 per cent if interest is raised beyond a limit. This is Rs 50,000 in the case of senior citizens. In the case of non-senior citizens, it is Rs 40,000. In this way, if interest is earned beyond a limit, then banks deduct TDS. It appears in your Form 26AS. In such a situation, there may be a mismatch in 26AS and ITR.