TDS Applicability on Fixed Deposits increased from Rs 10,000 to Rs 40,000

INTRODUCTION

When an investor makes a Fixed Deposit or Recurring Deposit with Bank, Bank must deduct TDS on such interest and shall pay it to government. In budget 2019, few amendments were proposed in earlier rule. Let us understand this in detail.

TDS Applicability on FD

Rise in TDS Applicability on Fixed Deposits
Source : Interim Budget 2019

CURRENT PROVISION OF SECTION 194A (APPLICABLE UP TO 31.03.2019)

Section 194A talks about deduction of Tax on interest on FDs and RDs. This section is particularly applicable to resident Indian taxpayers. As per section 194A of Income Tax Act, 1961, TDS on Interest is applicable where-

  • Deposits are kept with Banking Company / Co-operative Society / Post Office / Companies
  • Unsecured Loans are given to Others and interest is earned on such loan

In case of INDIVIDUALS below 60 years of age,
TDS shall be deducted @10% while paying interest, if the amount of interest exceeds Rs. 10,000 in a particular financial year.

In case of SENIOR CITIZENS (i.e. taxpayers having age 60 years or more)
TDS shall be deducted @10% while paying interest, if the interest exceeds Rs. 50,000 in a particular financial year.

PROPOSED AMENDMENT AS PER INTERIM BUDGET 2019

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In the interim Budget 2019 Detailed Analysis, Finance Minister has proposed to increase the limit of Rs. 10,000 to Rs. 40,000. However, this amendment is proposed only for the depositors having age below 60 years and no change in case of Senior Citizens.
Therefore, as per amendment,

In case of INDIVIDUALS below 60 years of age,
If the interest is less than Rs. 40,000, TDS shall not be deducted by Banking Company / Co-operative Society / Post Office / Companies while paying interest to its depositors.

In case of RESIDENT senior citizens,
TDS on interest is deducted only if the interest amount is more than Rs. 50,000.

WHEN INTEREST RECEIVED IS LESS THAN RS. 40,000 / RS. 50,000

FD interest is fully taxable in the hands of the depositor. Limit of Rs. 40,000 / Rs. 50,000 is not exemption limit for taxability of Interest. The said limit is given only for deciding applicability for deduction of tax.
Therefore, if the FD interest earned by the depositor is less than Rs. 40,000 / Rs. 50,000, then bank will not deduct TDS on this interest BUT depositor must disclose this interest in his Income Tax Return and shall pay tax from his own pocket. For detail example on this, click here.

IF INTEREST IS NOT SHOWN IN THE INCOME TAX RETURN

Many people do not show the interest and attempt to avoid tax on the interest. This is not recommended at all.
Now, Government has accelerated the reporting norms. IT Department has started asking all the banks / Post Offices / Co-operative Societies to disclose their amount of interest paid / payable to its depositors. It is not fully implemented yet. However, the banks have started disclosing all their interest paid / payable to its depositors in its TDS returns along with the PAN of the depositors. Therefore, even if the TDS is not deductible on interest, the interest appears in Form 26AS of the depositor.

In such scenario, if a depositor avoids to show the interest in IT Return merely because TDS is not deducted, then Income Tax Department, on the basis of Form 26AS, may send a notice to the taxpayer asking reasons of not showing interest in the return and not paying tax on such interest. Therefore, it is advisable to show all the interest received during the year. Taxpayer may request bank, to provide him/her the interest certificate for the relevant financial year.

WHEN FDs ARE HELD IN DIFFERENT BRANCHES OF THE SAME BANK

If the FDs are held in different branches of bank, then for calculating limit of Rs. 40,000 or Rs. 50,000, Interest from all the branches shall be considered. Limit of Rs. 40,000 / Rs. 50,000 is not separately calculated for each branch.
For detail example, click here.

WHEN FD IS JOINTLY HELD

Even if the FD is jointly held, still the TDS shall be deducted against the PAN of First holder. Entire Interest and TDS shall be reflected on the PAN of First Holder.

APPLICABILITY OF TDS IN CASE OF NRI INVESTORS

Section 194A is not applicable to Non-Residents. In case of Non-Resident Individuals, TDS on FD interest is deducted @30% under section 195.
Also, there is no monetary limit for non-deduction of TDS. Therefore, in case of NRIs, TDS is deducted @30%, even if the interest received / receivable during the year is less than Rs. 10,000.
The proposed amendment in Budget 2019 Detailed Analysis is not applicable to NRIs and therefore taxation will not change for NRIs i.e. TDS @30% shall be deducted on every single rupee of interest.

You can check more than 100 such articles with examples, infographics etc. on our Income Tax Knowledge Book – https://TaxYadnya.in

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