23 November 2022
It was answered on this forum that Depends Unless specifically declared to bank, bank deduct TDS & declare the FD in first holder's PAN. Are there any Income Tax Circular or guidelines for this practice followed by the banks.
Read more at: https://www.caclubindia.com/experts/tax-treatment-for-interest-on-joint-bank-account-2878069.asp
11 July 2024
The practice of banks deducting TDS (Tax Deducted at Source) and declaring Fixed Deposits (FDs) in the first holder's PAN (Permanent Account Number) is based on provisions laid down in the Income Tax Act, 1961, and the guidelines provided by the Income Tax Department. While there might not be a specific circular that addresses this exact practice comprehensively, the principles are derived from the following provisions:
1. **Section 194A of the Income Tax Act, 1961:** This section deals with TDS on interest other than interest on securities. It mandates that banks deduct TDS at the time of credit of interest to the payee's account or at the time of payment of interest, whichever is earlier. The rate of TDS is specified in this section.
2. **Form 15G/15H Declarations:** As per Section 197A of the Income Tax Act, individuals (especially senior citizens) can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to the bank requesting not to deduct TDS if their total income is below the taxable limit.
3. **Income Tax Rules and Notifications:** The Central Board of Direct Taxes (CBDT) issues notifications and rules from time to time specifying the procedures and rates for TDS deductions by banks and financial institutions.
### Guidelines and Practices Followed by Banks:
- **PAN Declaration:** Banks require the PAN of the depositor to comply with TDS provisions. PAN helps in tracking the taxpayer's income and ensuring TDS compliance.
- **Joint Accounts:** In case of joint accounts, where there are multiple holders, banks typically follow the practice of declaring the FD in the PAN of the first holder for TDS purposes. This is because the first holder is considered the primary account holder for tax purposes.
- **TDS Rates and Thresholds:** Banks apply TDS rates as per the provisions of Section 194A based on the interest income earned by the depositor. If the total interest exceeds specified thresholds (currently Rs. 40,000 for non-senior citizens and Rs. 50,000 for senior citizens), TDS is deducted.
- **Communication to Account Holders:** Banks usually communicate the TDS deduction and the declaration of FDs in the PAN to account holders through their account statements or TDS certificates (Form 16A).
### Conclusion:
While there may not be a specific circular that explicitly outlines the practice of declaring FDs in the first holder's PAN, it is based on established provisions of the Income Tax Act and guidelines issued by the CBDT. Banks follow these practices to ensure compliance with TDS provisions and to facilitate smooth income tax administration. For precise details and specific cases, consulting with a tax advisor or referring to the latest notifications and rules issued by the Income Tax Department would provide the most accurate guidance.
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