Did you ever think you might have to pay tax on income you are yet to receive? Yes you have to, and in your favorite instrument - the good old bank fixed deposit - at that.

The tax on the interest earned at the end of a financial year on bank FDs, have to be paid even if the interest will be paid at a later date, or maybe years later. For example you have made an FD of Rs 50,000 for four years. You will have to pay tax on the liable interest for all the financial years it spans, even though the interest amount would come into your hands only at the end of the four-year tenure.

Says Tarun Ghia, chartered accountant, TMG & Associates, "If the tenure of the FD is more than one year, the interest is accrued every year, whether received or not." According to him, one needs to pay tax on the interest increase in advance.

The interest earned on FD is added to the individual's income and taxed according to the slab the individual falls into. In case, you earn interest income of Rs30, 000 in a given year, that amount will be added to your income and taxed accordingly. For a person whose income is above Rs1.25 lakh, the tax would work out to 10%. This will be added to your income each year, even though you haven't yet received the interest in your hands. In fact, interest should be calculated yearly.

The interest earned on FD is also compounded i.e. the FD interest is reinvested at regular intervals - quarterly, half-yearly or yearly. This is a phenomenon that helps grow your money further.

As a result of compounding, Ghia says, "Even if the interest during the entire term of the FD is 8% per annum, the interest for the first year will not be equal to that in the second year because of the cumulative effect."

Also, if the interest on a particular fixed deposit exceeds Rs10,000, tax is deducted at source (TDS), which is applicable per financial year. The bank will compute your interest and will deduct an amount equivalent to the tax, if any, by making adjustments in the FD amount. The TDS certificate or amount can be submitted when you are submitting returns to ensure that tax is not deducted twice on the same income. If the bank has not informed you about the TDS, please enquire with them about it.

## Friday, February 8, 2008

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## 16 comments:

The blog is informative and gives clear picture about the fixed deposits.Can u tell me if the fixed

interest earned ia 12500,and wat will be the tds charged by bank,had done the fd last year may 06

Good blog. Can someone answer my question. I am temporary NRI and will return to India permanently after 7 years. I want to open a NRO account for 7 years with interest payable on maturity. Will the Bank deduct TDS every time they calculate the interest due (but not paid) and will force me to collect the TDS every year from Income Tax Dept.?

AFAIK, TDS is approx 5%

good, but i also hv same confusion which savita mention. please reply. if total interst income=12500 then tax deducted on 12,500 or 12500-10000= 2500 Rs. becasue 10000 is excempted na. please clear

priya

kindly let me know if the fixed deposits of corporate entity is treated at par with individual deposits while computing tax

TDS for corporates on FDs is 20.6% by banks but actual tax on FDs for corporates wouk out to be 33.6%. how does the system works.

please let know the exact tax rates for corporates on bank's fixed deposits and if thw banks deduct just 20.6%, how is the remaining portion paid off by corporates

Anonymous said...

good, but i also hv same confusion which savita mention. please reply. if total interst income=12500 then tax deducted on 12,500 or 12500-10000= 2500 Rs. becasue 10000 is excempted na. please clear

priya

Can someone please tell me on what investment (other than PF) the interest earned is not taxable?

good, but i also hv same confusion which savita mention. please reply. if total interst income=12500 then tax deducted on 12,500 or 12500-10000= 2500 Rs. becasue 10000 is excempted na. please clear

priya

but madem i listen't that there is one form thart if you fill then bank will not cut money. although in that form you mantion that whatever income you are getting by fd interest,you will show while counting your total income.now please you tell me which form is this .

Just wanted to be calafy that if a wife gets secirity money of Husband after his death and she invest the same in Post Office scheme as joint accountwith her son . Will that incoem will be taxable even she does not have any other source of income .

Will the interesr earned witll be taxable to son as Son is in emoloyee and files the ITR of his income .

The information was really clear to understand. This would have helped many people.Can you tell me the formula on how to calculate the interest earned on FD for the financial year, for :

1) If the FD is opened on 15-aug-06, 5 year term 8%, compounded quaterly. How to calculate the interest earned for the period 1-apr-07 to 31-mar-08.

If the last quater of the FD fall in the mid of may07 do we need take the full interest as income for 2007-08 or only the days.

i am non resident indian , if i deposit Fixed deposit in bank in india and TDS is deducted at the time of maturity. Do i have to pay interest on every year on the bases of accrual interest.

Also do i have to file tax return because of my Fixed deposit in india

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the form for non deductiono f tds on fd is form 15g for every one and 15h for senior citizen above the age of 65yrs. and @priya- tds will be deducted on full amount of 12500 and not 2500. as 10000 is an exemption available for only those whose interest income does not exceed 10000.

ALso please note that interest earned on tax saving fixed deposits is taxable as well.

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