I have online FDs with banks. The interest on the FDs are cumulative and also automatic renewal is there. So the principle+interest gets renewed automatically for the next period. Bank doesn't deduct TDS for this as there is no redemption in the savings account. Please advise if I need to pay tax on the interest which is added quarterly to the principle but not added to my savings account. I believe the tax only to be paid when the FDs are broken and interest is added to the savings account. Please clarify.
If the interest paid is more than 10000 in a year then bank must be deducting TDS and same is getting reflected in your 26AS.
However, it is required to show the amount in your return and claim deduction upto 10000. Please note this 10000 limit include bank saving interest also.
Hi,
You have an option to pay tax on receipt basis or accrual basis.
If you choose to pay tax on accrual basis, you will have to pay tax even if the FDs are not broken. Generally, I advise to pay tax on accrual basis because ths helps paying tax at a higher rate when you receive huge interest at the time of maturity ( as at that time you will be in higher slab).
Dear Sir,
Hope you are doing well !!
There are 2 options to declare the interest, especially when it spans multiple financial years.
If TDS is deducted on Fixed Deposit then as TDS will appear in Form 26AS you MUST to show it in the same year as 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.
If TDS is not deducted then you have a leeway and you can show it at maturity. The disadvantage of showing at maturity is that a higher amount would be deducted at the end.
If you have a Fixed Deposit or Recurring deposit spanning multiple financial years, say you invested in Jul 2010 for 3 or 5 years and no TDS has been deducted and you have not shown interest in Income Tax return till now, then wait till maturity to show it in Income Tax Return and then pay the tax. Yes you will have to pay a bigger chunk at the end but it would avoid the confusion.
There are two options available with a person with regard to business income and income from other sources i.e. interest etc. either he can show that income on accrual basis or receipt basis.
If you wish to show it on receipt basis you can its your choice.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you.
Hi
Interest income from Fixed Deposits is fully taxable. Add it to your total income and get taxed at slab rates applicable to your total income. You can see it under the head ‘Income from Other Sources’ in your Income Tax Return. This Tax is Deducted at Source by the bank at the time they credit the interest to your account, and not when the FD matures. So, if you have a FD for 3 years – banks shall deduct TDS at the end of each year.
Add the interest income to your total income in your Income Tax Return each year (even though, it may not be paid out). See which tax slab rate you fall into. Match it with the yearly TDS deduction at the bank’s end. The Income Tax Department will adjust the TDS (which has already been deducted) against your final tax liability.
Even when no TDS is deducted include the interest income in your total income and pay tax on it. Suppose you wait until the maturity of your FD when interest is actually received– your total interest income may push you up to a slab and you may end up paying the higher tax.
If any tax is payable after the inclusion of your interest income in your total income – you must pay it before 31st March i.e last day of the financial year. This is how you can pay any tax that is due. In case you have a large income from interest – Advance Tax – it may become payable payable quarterly.
Hello,
Either you can declare the interest income on accrual basis or on receipt basis.
It would be advisable to declare the interest income on the accrual basis.
I hope this answer satisfies your requirements.
Regards,
CA Hunny Badlani
Your interest during the year would be liable to TDS if the interest exceeds 40K. The interest earned would be coming in your interest certificate. This will be included in the income when filing your ITR.
Dear sir,
Taxes are payable on the interest income as and when they accrue. You may choose to decide the year of taxability when the FD matures. It is advisable to check with the bank the reason for non-deduction of taxes. If the bank is likely to deduct taxes on maturity, then offer the interest to tax in that year. Else, you can pay taxes annually.
Hello sir
if that interest amt is shown in ur 26AS then u need to show that income in ur ITR but if it is not visibke in 26AS then u can show it as income at the time of maturity of FD
You have to pay tax, it does not matter that you received amount or not.
