Hi, I’m totally new to taxation so please be detailed!
I’ve read that bank FDs deduct 10% TDS if annual interest is 40k+
If my total income is below 2.5L I don’t have to pay TDS even when FD interest earned is more than 40k?
If my total income is 2.5L-5L, as per tax slab, its 5% tax. So, if TDS is deducted at 10% due to interest being more than 40k will I be getting 5% back as I’m under 5% tax slab?
TDS is deducted only on the amount exceeding 40k or once it exceeds the limit it deducts on the whole interest amount?
FDs interest is considered as taxable income, so even after deducting TDS the total interest amount will be added to my total income and further tax will be taken as per my tax slab? Does this mean FDs will deduct TDS and tax slab taxes both on it’s generated interest?
If my total income is below 2.5L I don’t have to pay TDS even when FD interest earned is more than 40k?
If your total income does not exceed 2.5 lacks, then submit form 15G to the bank. The bank will then not deduct TDS.
If my total income is 2.5L-5L, as per tax slab, its 5% tax. So, if TDS is deducted at 10% due to interest being more than 40k will I be getting 5% back as I’m under 5% tax slab?
If TDS is already deducted and to get a refund you need to file returns.
TDS is deducted only on the amount exceeding 40k or once it exceeds the limit it deducts on the whole interest amount?
If the amount of interest exceeds 40K, bank is bound to deduct TDS on the actual interest income.
FDs interest is considered as taxable income, so even after deducting TDS the total interest amount will be added to my total income and further tax will be taken as per my tax slab? Does this mean FDs will deduct TDS and tax slab taxes both on it’s generated interest?
Total income will be computed and any TDS that is paid will be considered as advance tax paid and only on the net amount (if any) you will be liable to pay.
I have copied from paisa bazaar.com the rules regarding TDS.
If your total income for the year is below Rs 2.5 lakh, you can submit or use [form 15G]). This will ensure that the bank does not deduct TDS since income does not fall in the taxable slabs and you are not liable to pay any taxes.
You can invest in names of family members like spouses, parents etc. The tax on fixed deposit interest income is calculated for an individual and the tax they are charged depends on the slab rate under which they fall. This can be explained through an example. If you wish to invest Rs. 300,000 in fixed deposits which give an interest of 10%, the interest earned will be Rs. 30,000 and the TDS deducted is Rs. 3,000. Now instead of depositing all this amount in your name, you deposit Rs. 75,000 each in the name of your father, your mother, spouse and yourself (adding up to Rs 3 lakh), the interest per fixed deposit comes to Rs 7,500. This is below thr threshold of Rs 10,000 and no TDS will be deducted. However doing this can attract the clubbing provisions of the Income Tax Act, 1961 in which the income of your spouse/other family members is clubbed with your income. Consult a CA before you do this.
Points to Know About TDS on FD
If the bank has deducted TDS but you are liable for a lower rate of tax, you can claim the amount back as a refund in your income tax return from the Income Tax Department.
If you fall under the higher income tax slab rates of 20% and 30% you will need to pay the tax over the TDS charged as self-assessment tax…
The banks calculate TDS at the time the interest is due for the deposit and the not when they pay it. Thus, the tax on the interest income should be paid annually and not at the time of the FD maturity. If you want to calculate FD maturity amount then use
Its simple. If TDS is deducted, it counts towards tax paid.
Taxpayers still have to declare this interest income under income from other sources in their Income Tax Returns. They can claim it back as deduction from gross total income under Section 80TTA of the Income Tax Act.
Thanks for the info. Could you also please tell if FD interest increases 40K limit then 10% TDS is charged on the amount exceeding 40K or as soon as it breaches the limit TDS is charged on the whole interest amount?
Also, if my payable tax as per my tax slab comes out to be lesser than the TDS deducted, what should I be doing to claim a refund?
Is it also possible to just file form 15G even if I know my total income would be over 2.5L just to prevent auto deduction of TDS and later on just pay the whole tax payable as per my tax slab?
1 last question, as you mentioned 80TTA for deduction on savings account interest, does this come under 80c 1.5L deduction or this is something else?
If something else, do you need to file another form to claim that 10k deduction for the savings account interest while filling itr?
If your total income does not exceed INR 2.5 lakhs, then you should submit Form 15G to the bank. The bank will not deduct TDS.
It is not suggested to submit form 15G if your income exceeds INR 2.5 lacs just to avoid deduction of TDS.
If your total income is between 2.5L-5L where the tax rate is 5% and TDS is deducted at 10% then you will be entitled to claim a refund of excess tax deducted by filing the income tax return.
If FD interest increases 40K limit then 10% TDS is charged on the whole interest amount as soon as it breaches the limit.
Yes, FD interest is a taxable income. While computing the total tax, FD interest income will be the part of total income and tax will be calculated at slab rates. You need to pay net taxes on total income after considering the TDS that is already deducted on income.
80TTA is a separate section for deduction up to rupees 10k on savings account interest exclusive of 80C. You do not need to file another form to claim that 10k deduction for the savings accounts interest while filing ITR.
I came across an article which suggested a solution for this -
Spreading your FDs helps you in avoiding TDS
Non- senior citizens whose taxable income is above the basic exemption limit but below Rs 5 lakh, cannot use Form 15G to avoid TDS even though their tax liability is nil after the rebate under section 87A. In such a case you can spread your deposits across different banks to prevent TDS deduction. This will save the undesired hassle of getting TDS deducted then claiming refund while filing ITR.
Others who are required to pay income tax, have the option to spread their FDs across different banks to avoid TDS. Though they will have to show this income in their ITR and pay the required income tax later, they can save the preventable compounding loss.
I guess, you can. The bank is not going to verify or cross check. You are signing off on a form and giving it a bank claiming that your income is less than the limit prescribed.
Actions might lead to consequences - if you are willing to accept consequences, yes you can.
If you have FDs in multiple banks and if the annual FD interest is less than 40,000 in each of them, then the banks don’t deduct TDS on interest. But the cumulative interest amount (sum of FD interest of all banks) becomes more than 40,000 and now you are liable to pay advance tax in order to save from paying interest on tax dues later. If you are not careful, this penalty of not paying advance tax would cost you a lot.
But if you have some proprietary business, and you have expenses to show, you can offset the total FD interest as income from other sources against the expenses you incurred. So banks don’t deduct TDS, and you can save tax too with the help of balancing against business expenses.
There are reasons why the salaried class can’t escape tax, while businessmen can find a way.
Just read about the advance tax and it states that you’re only liable to pay it if you’re total tax is above 10000 in that FY. So, if I know that my total tax after adding up the business income, FD interest and 80c deductions is not going to be above 10k, then it doesn’t matter even if TDS was deducted or not right as I’m not liable to pay advance tax.
However, under section 87A of the Income Tax Act, 1961, resident individuals whose net taxable income is less or equal to INR 5,00,000 will be able to claim a tax rebate up to INR 12,500.
In this way, there are no taxes up to INR 5,00,000 If you earn any income taxable at slab rates.