Interest on FD
This query is : Resolved
21 May 2016
is interest on F.D. in nationalized Banks by apartment owners association is chargable income ?
21 May 2016
FD interest is taxable.
Inference - Bangalore Club Vs. CIT [2013] 5 SCC 509.
Inference - Bangalore Club Vs. CIT [2013] 5 SCC 509.
22 May 2016
Yes, FD interest is taxable income. If you want to avoid give 15G if it is registered other than Company to avoid TDS
25 May 2016
It may not be chargeable to tax if the question of mutuallity can be proved.
25 May 2016
mutuality means? pls explain
01 August 2024
Interest earned on Fixed Deposits (FDs) by an Apartment Owners Association (AOA) can indeed be chargeable to tax, but whether it is taxable depends on certain conditions and whether the concept of mutuality applies.
### **Mutuality Principle:**
**Mutuality** is a principle where income or benefits are not taxable because they arise from transactions between members of a mutual association or organization, and the transactions are for mutual benefit. Essentially, it means that the income is distributed among members of the association and is not considered income in the conventional sense.
### **Mutuality Concept in Context:**
- **Applicability**: For an association or organization to claim mutuality, it must demonstrate that it is a mutual association where all members contribute to and benefit from the association's activities equally. This principle often applies to non-profit organizations, cooperative societies, and similar entities.
- **Conditions for Mutuality**:
- **Contributions and Benefits**: All members of the association contribute to its funds and benefit from its activities in proportion to their contributions.
- **No External Income**: The income earned by the association must be from activities that are directly related to the mutual benefit of its members and not from activities with outsiders.
### **Interest on FD by Apartment Owners Association:**
1. **Chargeability to Tax**:
- If an Apartment Owners Association earns interest on FDs, it could be considered taxable if it does not meet the criteria for mutuality. The interest income is generally treated as income from other sources and is taxable.
2. **Mutuality Test**:
- To claim exemption under the principle of mutuality, the association would need to show that the interest income is used for the mutual benefit of its members and not for any external purposes. This means:
- The interest income should be used for the association's expenses that benefit all members.
- The association should not be engaged in business activities with outsiders where the income is derived.
3. **Practical Application**:
- In practice, many AOAs do not meet the strict conditions for mutuality because they often engage in activities or investments that do not directly benefit all members equally. Hence, interest on FDs is usually taxable.
### **Summary:**
- **Interest on FD**: Generally chargeable to tax unless the mutuality principle applies.
- **Mutuality**: Requires that the association is mutual in nature, all members contribute and benefit equally, and the income is used for mutual purposes.
If the Apartment Owners Association believes that it meets the criteria for mutuality, it should document and prove this to the tax authorities. Otherwise, the interest income from FDs should be reported and taxed accordingly.
### **Mutuality Principle:**
**Mutuality** is a principle where income or benefits are not taxable because they arise from transactions between members of a mutual association or organization, and the transactions are for mutual benefit. Essentially, it means that the income is distributed among members of the association and is not considered income in the conventional sense.
### **Mutuality Concept in Context:**
- **Applicability**: For an association or organization to claim mutuality, it must demonstrate that it is a mutual association where all members contribute to and benefit from the association's activities equally. This principle often applies to non-profit organizations, cooperative societies, and similar entities.
- **Conditions for Mutuality**:
- **Contributions and Benefits**: All members of the association contribute to its funds and benefit from its activities in proportion to their contributions.
- **No External Income**: The income earned by the association must be from activities that are directly related to the mutual benefit of its members and not from activities with outsiders.
### **Interest on FD by Apartment Owners Association:**
1. **Chargeability to Tax**:
- If an Apartment Owners Association earns interest on FDs, it could be considered taxable if it does not meet the criteria for mutuality. The interest income is generally treated as income from other sources and is taxable.
2. **Mutuality Test**:
- To claim exemption under the principle of mutuality, the association would need to show that the interest income is used for the mutual benefit of its members and not for any external purposes. This means:
- The interest income should be used for the association's expenses that benefit all members.
- The association should not be engaged in business activities with outsiders where the income is derived.
3. **Practical Application**:
- In practice, many AOAs do not meet the strict conditions for mutuality because they often engage in activities or investments that do not directly benefit all members equally. Hence, interest on FDs is usually taxable.
### **Summary:**
- **Interest on FD**: Generally chargeable to tax unless the mutuality principle applies.
- **Mutuality**: Requires that the association is mutual in nature, all members contribute and benefit equally, and the income is used for mutual purposes.
If the Apartment Owners Association believes that it meets the criteria for mutuality, it should document and prove this to the tax authorities. Otherwise, the interest income from FDs should be reported and taxed accordingly.
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