13 July 2014
TDs is applicable if interest on bank deposit exceeds rs.10,000/. In the case of FD, the system of calculation of TDs on FD is as follows. Interest earned and credited during the financial year plus interest accrued till 31st march but not credited. While appreciating inclusion of interest accrued also for TDs calculation, the component of interest accrued so included in respective financial year is not excluded from the interest credited in the following f.y. Ultimately, TDs is recovered based on a wrong calculation formula presently done by many banks. Why this practice is followed which is detrimental to the interest of depositors who are forcibly identified in the TDs bracket due to this incorrect calculation methodology, under the guise of IT norms which is silent with regard to elimination of interest accrued on previous fly while calculating interest earned during a f.y ?
Please note that Banks are deducting TDS on the correct basis as per the income tax norms. Please refer explanation to the Section 194A of the Income-tax Act 1961
Income-tax regulations are pretty clear on this. If you are following cash based accounting, you offer the accrued interest only in the year of receipt. The TDS credit from the past year can be carried forward to the year of receipt.
If you are following accrual system, you offer interest on accrual basis only irrespective on when the interest is actually credited to your account.
Querist :
Anonymous
Querist :
Anonymous
(Querist)
13 July 2014
Dear expert, Noted the reply. I would like to send an excel work file for better clarity on the subject. Can I have your mail I'd pls ? It is true that interest accrued also need to be included for ascertaining the actual interest that a depositor would have earned during a f.y. But is it a fair practise to include the interest accrued at the end of one f.y repeatedly included as interest earned in the first qrtr of following f.y to make the depositor accountable for tds payment. IT rules says interest accrued to be included, but need more clarity in the section whether interest once included in the previous f.y can be excluded in the current f.y. By making it clear, several small investors and senior citizens will be benefited, as their small savings can be brought out of purview of the cut off limit of rs.10,000 p.a., besides reducing the tds payment by others.
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