Banking News

TDS on Fixed deposits’ interest

Hither to, banks were deducting TDS (Tax Deducted at Source) only if the interest earned from FDs made in a particular branch exceeds threshold limit of Rs.10000.00. Therefore it was common for investors to open FDs at multiple branches of their bank to circumvent TDS. The budget 2015 proposes important change in the rules relating to interest income from FDs. As per new rules, banks will be deducting TDS if the combined interest income of a customer’s FDs in all branches of a bank exceeds Rs.10000/- in a financial year. The interest earned on RDs should also be included to combine income of FDs which was not subjected to TDS till now. The new rule will come into effect from June 1, 2015.

The TDS  rules of income tax Act specifies that if the interest income of a depositor exceeds Rs.10000.00 per annum, the tax at the rate of 10% shall be deducted as TDS payable on interest income. The interest paid on PF, PPF or Tax free bonds and  interest received up to Rs.10000.00 on Savings Bank deposit, are exempted from Income Tax. Hence, TDS on interest paid is not applicable on above income. The account holder shall furnish his/her PAN number to the Bank. The Tax at 20% will be deducted from the interest if PAN number is not submitted to the bank.

Reduced tax for holders of tax residency certificates:

The Interest earned on NRO account irrespective of amount is also liable for tax at the rate of 30% (tax deductible at source). However, NRIs/ PIOs can submit Tax Residency certificate issued by the Governments of the NRI’s / PIO’s country of residence to avail benefit from applicable lower rate of tax  on interest paid on NRO deposits. The applicable TDS for tax residents of UAE under India, UAE Double Tax Treaty (on the basis of self-declaration) is 12.5%. For residents of Oman, Kuwait ,and Qatar it is @10% and tax is at 15% for the tax residents of USA, UK, Kenya and Belgium on providing Tax residency certificate from the respective Governments.

Submission of Form 15G or Form 15H to avoid TDS: If the total income of the depositor such as salary, pension, interest, rent, capital gains and so on, is below the taxable income, TDS need not be deducted. If TDS should not be deducted on interest paid, the depositor has to submit form 15 G or form 15H for Senior Citizen (age of 60 years and above) every year, preferably during the month of April as tax deducted and already remitted to Income Tax department can not be refunded by the bank and fresh declaration for additional /new deposits made during the year. From the financial year 2013-14, there are slight modifications in  form 15G and 15 H wherein, one must mention the expected total income in the financial year and tax exemption if any (exemption  under section 80C or interest paid on Housing Loan etc,) ,to be availed by the depositor. At present, the basic exempted income for individuals below the year of 60 years and H.U.F is Rs.2 Lakh, for the individuals of 60 years and above (Senior Citizen) is Rs.2.50 Lakh and for very Senior citizen (above 80 years) is Rs.5 Lakh.

Eligibility to submit declaration form 15G or 15H: All individuals are not eligible to submit 15 G or 15H declaration forms. For submission of declaration form 15G (individuals of below 60 years and H.U.F), the total interest income should not exceed the basic exempted income limit of Rs.2.50 lakh.  For submission of 15 H (Senior Citizen), the total income from all sources should not exceed the basic exempted income of Rs.3.00 lakh or   Rs.5.00 lakh (applicable for those who are above 80 years of age).



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