Fixed Deposits (FDs) is known to be the way of savings and you can also earn a good amount of income in the form of interest but this income is taxable.
Interest from Fixed Deposits is fully taxable. It is added to the total income and taxed at the slab ratesapplicable to the total income. It appears under the head ‘Income from Other Sources’ in your Income Tax Return.Banks deduct the TDS on interest income when it is accrued and not at the time when FD matures.
To calculate the tax on interest income, add the interest income to the total income and calculate the tax liability. If you fall in the 20% tax bracket and you have one Fixed Deposit with a bank of Rs 1,00,000for a period of 5 years at 8% interest per annum, then in the first year your interest income is Rs 8,000 from the FD andthe bank will deduct the TDS at the rate of 10% of Rs 800 on the FDs.
If the tax is payable after including the interest income in the total income, you will have to pay it before 31st March of the financial year. However, in cases where a large income is formed from interest then it may become payable on a quarterly basis
When is TDS at the rate of 10% is deducted by Bank?
If the interest income from all FDs with a bank is less than Rs 40,000 per year, then the bank does not deduct any TDS.Before the 2019 Budget, the limit of TDS on interest income was Rs. 10,000.If PAN information is not provided to the bank, a TDS at the rate of 20% is charged.
However, in case of housewives or senior citizens, no tax is deductible on the interest income in a year if their Total Income (including interest income) is less than the minimum exempt income of Rs 2,50,000 for the financial year 2018-19.
Let’s look at the similar case
Facts of the Case:
- District Consumer Forum has instructed SBI to pay back the charged tax on Customer’s Fixed Deposit.
- Apart from this, the bank is told to pay Rs 15,000 as fine.
- The case was filed by Amar Singh of Sector 71 of Mohali.
- According to the case filed, Amar Singh has a saving account in the bank.
- On March 2013, he opened an FD account of 40,000 for 5 years.
- According to the 5 percent interest rate, he was supposed to get Rs. 60,912 after the expiry of the tenure.
- After the FD account matured, the bank gave only Rs. 50,447.
- Amar inquired about the deducted amount, he came to know that bank charged the tax of Rs. 10,467. In this Rs. 6388 was the tax and Rs. 1404 was TDS. The total became Rs. 7792 but the bank charged Rs. 10,467.
- However, the bank returned the excessive amount afterward. Amar complains that the tax charged is not right and he filed the case in the consumer forum.
- Bank instructed to pay the tax amount back along with Rs. 15,000 fine and Rs. 5,000 for the court case charges.
This post is written by Damini Aggarwal of Punjab University (2020 batch). For more info, please dial 99888-17966.