Fixed Deposit And Tax Deduction at Source

FixedDeposit is truly a very useful product offered by finance industries that allow an investor to earn fixed rate of interest over a fixed time period. Fixed deposit is one of the most sought after and popular form of investment option in India.  

When you open a fixed deposit plan with bank or any other financial institutions like a Non-Banking Financial Company, then you are lending money to that particular financial institution and in return it pays you with interest. Applicable interest rate is generally mentioned as on the date of receipt of the funds by the financial institution 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 financial institution, after a threshold. This article throws light on Taxation aspect of Fixed Deposit Plans.

Tax Deduction at Source:

As per the norms if the aggregate Fixed Deposit Interest Rate that you’re likely to earn from all your deposits is greater than Rs. 10,000 in a financial year you are liable to tax deduction at source. In addition to this, tax is also deducted on interest accrued at the end of the financial year. For example, if an investor has earned Rs. 20,000 as interest in one year, then the bank would deduct Rs. 2000 and pay you only Rs. 18,000 as the amount exceeds the limitation of Rs. 10,000. A consolidated TDS certificate in the form of Form 16A is issued in the month of April during every financial year. Form 16A id designed to 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 the tax has been deposited in your name. 

How is TDS Liability Calculated:

TDS liability is calculated on the first applicant’s name. Even deposits held by minors are also eligible for TDS. However, in this case the interest income will be clubbed under the income of the person in whose hand the minor’s income is included. Some investors are also of the habit of taking fixed deposit interest rates in the name of a non-earning family member such as spouse or mother. In this case the rule is that the person has to submit a declaration saying his/her income is not taxable. Nevertheless, if the income is calculated, it would be charged from the donor or the earning member.