Tax Deducted at Source
What is TDS?
TDS stand for Tax Deducted at source is a way the government collects tax from individuals, where the person making a payment is responsible to collect part of the payment as TDS (prescribed rate) and pay the money to government on behalf of the person earning the money. The common error that assessee make is that they ignore the income from fixed deposits at the time of filing for income tax. Interests from bank deposits is taxable as income from any other sources.
TDS on bank deposits
Earnings from interests on bank deposits attract tax in way of TDS. The banker deducts TDS from interest on deposits before paying the interest to the receiver. TDS is charged on bank deposits if the total interest on such deposits exceeds Rs 10,000 per year per bank branch per Individual.
Rate of TDS:
TDS is charged at 10% if the assessee hold PAN card. If not, higher TDS will be deducted. TDS will be deducted at 20% in such case. The motive for this provision is to motivate people for obtaining PAN Card, otherwise they’ll be liable to pay more tax. The banker is then liable to pay the TDS on prescribed dates to government’s account. So always make sure that your PAN is updated with your bank.
TDS is also deducted in interest accrued. This means that tax will be deducted even if such interest is not paid or credited to your account. such tax will be deducted at the end of financial year. So always make sure that bank have deducted and paid tax before you file your return.
Tax on interests on fixed deposits can be controlled by dividing the deposits. TDS is charged only when the interest exceeds Rs 10,000 per bank branch per individual. So an individual can deposit in multiple branches or banks instead of depositing the whole amount in one bank branch also, an individual can save TDS by dividing the deposits in different accounts, say your spouse’s account to avoid TDS.
In case the TDS is more than the Total tax liability, the assessee can ask for TDS refund at time of filing income tax returns. In simpler words, if the interest for a year on fixed deposit in a particular bank is more than Rs. 10,000, the bank, while paying the interest, will deduct 10% of the interest and deposit it with the government on your account. Such deduction is tax deduction at source.
Many a times, TDS on bank deposits becomes a burden on tax payers, when the TDS is deducted on bank deposits is more than the tax liability. To reduce this burden, government introduced forms 15G and 15H. As per section 197A, if a person claims nil or lower TDS deduction, TDS will be deducted at lower rates and mentioned in the declaration form. Such form has validity of 1 year and so it has to be submitted again after every year.