How the TDS on interest earned from banks taken?
As per Section 194A of Income Tax Act, banks have to deduct TDS from customers who are earning over Rs.10,000 as interest from them during a financial year against FD. This means, if you are earning over Rs.10000 a year from FD during a financial year, you will have to pay tax for this which will be collected by the bank in prior/at source. For example, if you are earning Rs.10000 a year as interest, after deducting 10% out of it and the net amount you will be receiving is Rs.9000/- only.
The bank will issue a TDS certificate stating the amount of interest earned by you and the amount deducted by them. At the time of filing the returns, you can claim this amount back if you are eligible for it after considering your gross tax liability as per the current income tax slabs.
What about FD scheme which we use for saving taxes (e.g. 5 years)? has the interest earn under those schemes is taxable?
Getting tax rebates for investing in FD and paying TDS for interest earning through FD are two different things. I’ll explain it through an example.
Say suppose if you invest Rs.1 lakh in FD this month. You will get that amount as exception for tax, while filing for the year 2014-15. This comes under Section 80C of Income Tax Act, where you can claim a maximum of Rs.1.5 lakhs by investing in various tax saving financial instruments like FD, life insurance etc.
On the other hand, the interest you are earning from this investment, ie, the interest you earn for this 1 lakh is taxable. A 10% TDS will be deducted from the interest the bank paying you against your FD. The interest you earn from FD will be included in your net income.
Any interest you earn from your Fixed Deposit is a taxable income and not tax free, under the Income Tax Act 1961. The taxes will be levied on the individual as per their income tax slabs. Basically a fixed deposit will pay out the interest upon maturity and if the interest earned through such Fixed Deposits crosses Rs. 10,000, the bank will deduct TDS.
However, if your total income including the interest from FD falls under the non-taxable bracket then you have to submit Form 15G with the bank. For senior citizens it’s Form 15H. If your banks deducts TDS even after you have submitted the required forms, then you can claim a refund when you file your returns.
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