We have got many queries on fixed deposit and request on writing about fixed deposit only from perspective of income tax return. So this article is answers to questions: Is Fixed Deposit interest taxed? Is TDS deducted? Do I need to pay tax if TDS is deducted? How to show interest,TDS in Income tax return? How to claim refund if tax has been deducted?
Table of Contents
Overview of Fixed Deposit and Tax
Fixed Deposit(FD) is an investment product which allows you to invest a lump of money for a fixed time period and at a fixed rate of interest. Its features are as follows:
- Interest income from Fixed Deposit comes under Income from Other Source. Other types of Income are Income From Salary, Income from House Property, Income from Business and Profession, Income from Capital Gain.
- Interest that is earned on fixed deposits is taxable in the hands of the depositor as per the income slab so a person who earns income above 10 lakh pays 30% tax (And education cess and surcharge extra) while below exemption limit does not pay any tax.
- If the total interest income from fixed deposits that you are likely to earn for all your deposits held in a branch is greater than Rs 5,000 in a financial year, you become liable for TDS.
- For Senior Citizens, Under, Section 80TTB of the income tax act, interest income earned from deposits qualifies for a deduction of upto Rs 50,000 in a year. This section is available to senior citizens since April 1, 2018. The benefit of section 80TTA, which allows the deduction of the interest income (up to Rs 10,000) from the savings account, is not available to the senior citizens.
- If PAN is not submitted TDS is deducted at the rate of 20%.
- TDS is also deducted on interest earned or accrued, but not yet paid, at the end of the financial year. If you have gone for cumulative option in FD which pays interest at maturity still interest would be earned every year and TDS if applicable would be deducted though you DID NOT get the money.
- A TDS Certificate in Form 16A, for TDS, deducted during a financial year is issued in the month of April of the following financial year.
- TDS deducted is also shown in your Form 26AS which is tied to your PAN number. Details in it should match the Form 16A provided by the bank to you.
- Tax liability of FD is calculated on the first applicant’s name. The second or joint holder has no tax liability.
- Deposits held by minors, as a first account holder, is also subject to TDS. In this case, the interest income will be clubbed under the income of the person in whose hands the minor’s income is included.
- If fixed deposit held by the non-working wife as first account holder from the money of her husband, interest income will be clubbed with that of husband.
- If FD is held by a parent as first account holder from the money of her adult children then interest income will be the parent’s income. But if FD is held by an adult child then the interest income is of the adult child and not of parents.
- If you believe that your total interest income for the year will not fall within overall taxable limits, you should inform the Bank not to deduct TDS on deposits by filing Form 15G or 15H (There are chances that in-spite of filing Form 15H/15G TDS may be deducted. Govt has asked the bank to provide acknowledgement for submission of Form 15H or 15 G)
YouTube Video on Fixed Deposit (FD)
Our video (9 min long) explains it detail
When to show Interest from Fixed Deposit in Income Tax Return
Show Income from Fixed Deposit every year, on the basis of accrual i.e., interest earned but not yet received (technically called as mercantile (accrual) basis of accounting)
As now Form 26AS shows the TDS amount whether TDS is deducted or not. Income Tax Department will be using the TDS in verifying your income tax return. Our article Viewing Form 26AS on TRACES explains it in detail.
How to show Income from Fixed Deposit income tax return?
Income from Fixed Deposit needs to be shown as Interest portion of Income from other sources explained in Income From Other Sources :Saving Bank Account, Fixed Deposit,RD and ITR as shown in picture below. Please show the entire interest amount including TDS. For example, if you have earned income of 19,535 (without TDS deduction) with TDS deducted as Rs 1953.5 ( 10% of 19,535) then 19535 should be shown in income from other sources and 1953.5 should be claimed in TDS.
TDS (if deducted) on the interest income should be claimed by the individual in the income tax return and should be shown in TDS section. Explained in detail in Fill Excel ITR1 Form : Income, TDS, Advance Tax means filling information following information as shown in image below
- Unique TDS Certificate Number : This is a six digit number which appears on the right hand top corner of those TDS certificates which have been generated by the deductor through the Tax Information Network (TIN) Central System.
- Deducted Year -mention the financial year in this column.
- Total Tax deducted Enter details from Form 16A. Round off to nearest Rupee.
- Amount out of (6) claimed for this year. Usually this will be the same as tax deducted. This value cannot exceed tax deducted. Round off to nearest Rupee.
TDS deducted should be reflected in Form 26AS in PartA – Details of Tax Deducted at Source as shown in picture below (it is not for same amount as shown above)
How to calculate tax liability for interest on Income Tax Return?
As mentioned earlier, Interest that is earned on fixed deposits is taxable in the hands of the depositor as per the income slab so a person who earns above 10 lakh pays 30% tax (And education cess and surcharge extra). If TDS is deducted and you are in 30% tax slab then you need to pay a remaining tax of 20%.
Say you have earned income of 19,535 (without TDS deduction) with TDS deducted as Rs 1953.5 ( 10% of 19,535) then 19535 should be shown in income from other sources and 1953.5 should be claimed in TDS.
After entering ALL your other Tax details when you calculate your Tax Liability, for example in ITR1 Excel Click on tab Income Details. Click on Calculate Tax to calculate the tax that you should be paying for the income and deductions you have declared as shown in picture below
If you have paid less tax, it would show the difference in the Balance tax payable row of Income Tax Details as shown below
To recall from Fill Excel ITR form : Personal Information,Filing Status : White cells with blue labels indicate auto calculating fields which should not be filled. These are calculated automatically based on information entered in other cells.
It would also show up in the rows 15-18 of tab Taxes Paid and Verification. If you have paid more tax, it would show the amount in the tax refund row 18 of tab Taxes Paid and Verification
If tax is payable then Pay Self Assessment tax using Challan 280 , update it’s detail in TDS section as shown in image from our article Fill Excel ITR1 Form : Income, TDS, Advance Tax so that your tax due to Income tax department is Zero or Nil (0). Our article Paying Income Tax : Challan 280 explains how to pay the Self Assessment Tax.
If I have Tax Refund what to do?
In many cases it has been seen that TDS was deducted even though Form 15G/Form 15H was submitted Or TDS was deducted but income is below taxable limit. In such cases tax would be refunded to you. To claim refund you need to :
- Fill your income tax return form in the normal way
- Show Interest earned for Financial year as Interest income in Income from other sources
- Show TDS deducted in TDS section
- Then when you calculate tax due it would show up as Tax refund row 18 shown below. This is the amount you would get back or refunded.
What if there is TDS mismatch for FD?
If it happens TDS is not showing in Form 26AS, which may happen even if you have Form 16A issued from bank, you need to contact the bank and get it reflected in Form 26AS. If you claim the TDS and it is not in Form 26AS then while verifying your Income Tax Return, mismatch would be caught and you would get a notice from Income Tax Department for tax due. (Yes it has happened with me and that was one of the factors that made me take up personal finance blogging)
Our articles which can help you fill the Form ITR1
- E-Filing of Income Tax Return
- E-filing : Excel File of Income Tax Return
- Which ITR Form to Fill?
- Fill Excel ITR form : Personal Information,Filing Status
- Fill Excel ITR1 Form : Income, TDS, Advance Tax
- Fill Excel ITR1: 80G, Exempt Income,Calculation of Tax
- After e-filing ITR: ITR-V,Receipt Status,Intimation u/s 143(1)
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