TDS On Bank Deposit & Interest

The Income Tax Act makes interest income from bank deposits and other types of securities taxable. As a result, banks or financial institutions that pay interest must deduct TDS at a rate of 10% of the interest earned. In this post, we will look at the TDS rules of the Income Tax Act that apply to bank deposits and interest income.

Bank Deposit TDS

Most taxpayers must pay TDS on bank deposits since the interest on bank fixed deposits is fully taxed. If interest income for the year exceeds Rs.10,000, banks will deduct TDS at a rate of 10% of the interest generated. If the account holder has not updated his or her PAN on the bank account, TDS will be deducted at a rate of 20% of the interest earned. As a result, all taxpayers must check that their bank account complies with KYC requirements.

Exemption Procedure – TDS On Bank Deposit

Taxpayers who do not have taxable income of more than Rs.2,50,000 are also subject to TDS on bank deposits if their interest income exceeds Rs.10,000 in a calendar year. Taxpayers who do not have taxable income can avoid TDS deduction by filing Form 15G or Form 15H with the relevant bank.

15G Form

Form 15G is a declaration issued by an individual or person claiming certain incomes that are not taxed. A taxpayer can prevent TDS deduction on bank interest by completing and submitting the form copied below to the bank.

15H Form

Form 15H is a declaration issued by a person over the age of 60 claiming certain incomes without deducting taxes. Form 15H can only be submitted by people above the age of 60, although Form 15G has no such restriction.

Claiming Refund Of TDS On Bank Deposit

If the bank has deducted TDS on a bank deposit from a taxpayer not required to pay tax, then the taxpayer must file income tax returns to claim a refund of the tax deducted by the bank. Because the procedure of filing an income tax return and seeking a refund is time-consuming, all taxpayers who are not required to pay taxes should file Form 15G or Form 15H to avoid TDS.

TDS Rate For Interest Payment

  • Any person responsible for paying income by way of interest on securities is required to deduct TDS at the rate of 10% if PAN is provided and 20% if PAN is not provided. When deducting TDS, the deductor must deposit it with the government by the due dates listed below: Tax deducted from April to February must be credited to the government within seven days after the end of the month in which the tax is deducted.   
  • Taxes deducted during April must be credited to the government by the 30th of the month.
  • If a person fails to deduct tax at source or fails to deposit TDS deducted to the Government by the due date, the assessee will be charged simple interest at a rate of 1% per month or part of a month, beginning with the due date and ending with the date of deduction. A 1% interest rate is solely intended as a deduction, but a 1.5 percent interest rate would apply in the event of nonpayment.

Exemption From Certain Interest From TDS

TDS On Bank Deposit & Interest

In the following circumstances, the interest on securities payable is exempt from taxation:

  • Insurance firms are entitled to interest on securities in which they hold or have a 100% beneficial interest.
  • Interest paid or credited by a publicly traded corporation of not more than Rs 5000 on the following scenarios:
  • If debentures are issued by a publicly-traded company, whether or not such debentures are listed on an Indian stock exchange.
  • Interest is paid/payable to a resident of India who is an individual or a HUF.
  • The account payee cheque is used to pay the interest.
  • During the fiscal year, the total amount of interest paid/payable does not exceed Rs 5000.
  • Interest is payable on any security issued by a corporation that is dematerialized (the conversion of physical shares into an electronic format) and listed on a recognized stock exchange in India in line with the Securities Contracts (Regulation) Act, 1956 and the rules adopted thereunder.
  • Interest paid or credited on Taxable 8% Saving Bonds 2003 issued by the Central Government, providing the interest does not exceed Rs 10,000.
  • A person, other than a corporation or firm, who provides the payer with a written statement in duplicate, in Form No. 15G, claiming that there is no Tax Payable on his Total Income.
  • Any payment made to anyone for, on behalf of, or for the benefit of the New Pension System Trust, as defined in Section 10. (44).
  • Payments are given to institutions, associations, or bodies that have been notified, etc.
  • Section 139(4A) or 139(4C) requires certain entities to file Returns.
  • Entities whose revenue is exempt unconditionally under Section 10.

TDS On Deep Discount Bonds

  • Tax deduction at source under Section 193 or Section 195 (the former dealing with tax deduction at the source concerning the interest on specified securities; the latter with the deduction on non-resident payments) can be executed only at the time of redemption of such bonds, regardless of whether the bonds were declared by the bond-holder annually on an accrual basis or only in the year of redemption.
  • Any person who has declared the income from a Deep Discount Bond on an annual basis during the term of the bond must apply to the Assessing Officer under Section 197 of the Income-tax Act, requesting the Assessing Officer to issue a certificate stating that no tax shall be deducted or that a deduction must be executed, but at a lower rate.
  • In such a case, the assessee must provide information on the income submitted to tax every year, together with the mandatory Form No. 13. If the assessee is not the original subscriber but purchased the bonds from another person, he must file the appropriate information, including the individual’s name, address, and PAN.
  • Upon completion of these conditions, the Assessing Officer will issue a certificate authorizing tax deduction at source at a reduced rate, to be computed by the applicant’s total income in the year of redemption.