About 80C

Seetha (B.Com, CA) (278 Points)
Replied 16 February 2010

thank you.

you have summarised the information very nicely.

i have a query,

that fd with scheduled banks that qualifies for deduction, wouldnt it be taxable in the year of receipt.

interest will be taxable every year na?

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 16 February 2010

@ ragini... interest on fd with schedule banks would b taxable every yr....

on maturity onli the interest for the last year would be taxable and not the entire amount coz the principal amt is wat u invested frm taxable income of earlier years and the interest for the previous years were already taxed..!!

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 16 February 2010

Taxation of Interest on Bank FDs

Know that interest income from Bank fixed deposits (FDs) is fully taxable in your hands. It is included in your other income and taxed according to applicable highest tax bracket.

Interest Income on FDs: Taxation vs. TDS
Understand that TDS and taxability of interest are two separate things.

First, just because TDS has been deducted from interest income on bank FD doesn’t mean that you’re no more required to show it in your return of income.

Second, even if there is no tax deduction at source (TDS), you’ve to include the interest income in your total taxable income and pay tax on it at the maximum marginal rate applicable to you.

Regarding TDS, two points are worth noting. First, TDS on bank interest is always deducted @ 10% whereas the marginal rate of tax applicable to you may be 20% or 30%; therefore, there can be additional tax liability based on your total income. Second, even if full TDS gets deducted from any income, one has to show both the income earned as well as TDS deducted in the return of income (ITR).

However, according to section 145 of the IT Act, 1961, you’re provided an option to include the interest income for tax purposes either on cash / receipt basis or accrual basis as per the regular method of accounting employed by you. But, once a choice is made, it should be followed consistently.

Anyhow, it is better to show the interest income on accrual / annual basis because you might have to pay higher tax if you show the entire interest on FD in the year of maturity due to increase of income to next higher tax bracket.

Rate of TDS on Bank FDs
As per section 194A of IT Act, 1961, tax @ 10% (earlier 10.30%) is deducted at source if the aggregate interest payable or reinvested exceeds Rs 10,000 for all your deposits (except recurring deposits and savings account deposit) in a bank branch during a financial year. TDS is deducted every time bank pays interest during the financial year. It is also deducted on interest accrued (but not paid / credited) at the end of every financial year (i.e., 31st March).

As per the changes made by budget 2009, with effect from April 1, 2010, it will be compulsory for you to furnish your PAN to the Bank failing which the bank will deduct TDS at the rate of 20% instead of 10%.

Avoiding TDS on Bank FDs: Form G / Form H
If your income is below the taxable limit, you need to present Form 15G/15H (as per section 197A of Income Tax Act, 1961), while opening a Fixed Deposit (FD) account in a bank to avoid tax deduction at source (TDS) from your interest income. Following points are worth noting regarding self-declaration in Form 15G / 15H:

1. While Form 15H is meant for senior citizens, 15G is for any other individual.

2. Form 15G / 15H can be submitted only if the tax on your total income is nil. In other words, you can’t submit a Form 15G / 15H if you’re already a tax payer.

3. New Form 15G / 15H has to be submitted for each FY.

4. An individual who is liable to pay tax can apply in Form 13 to Assessing Officer (as per Section 197) to obtain a certificate of lower rate of tax or no tax as may be appropriate.

5. According to amendment made by Finance Act 2009, the requirement of submission of PAN is also made mandatory for those submitting declaration in Form No 15G / 15H (effective from April 1, 2010). In other words, in the absence of PAN, the 15G / 15H declaration would become invalid.

regards,

ratan

Sohil (Learner) (631 Points)
Replied 17 February 2010

I have a doubt

My moms bank interest surpasses 10k limit

SHe has got a reminder to fill 15G form

She is a housewife and her income comes NIL when some investment are made into 80C instrument

IS she allowed or legally at fault to fill 15g form?

As 15g is filled whose yearly income yields nil return but not clearing the doubt whether 80c investments included or not

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 17 February 2010

yes,

15G is for lower or no deduction of TDS if the assessee is aware tht his/her income would b below stipulated limit..!

Sohil (Learner) (631 Points)
Replied 17 February 2010

Originally posted by : ankit
	yes, 15G is for lower or no deduction of TDS if the assessee is aware tht his/her income would b below stipulated limit..!

Say my mom earns 2.2l and 15k is the bank interest so the total is 2.35l

now she invest 1l though 45k allowed in 80c instrument.....

So she is under nil tax obligation

So is she allowed to fill the 15g form or only if your income is below 1.9l than only u are allowed

Though i got a reply on another forum to fill the form as no one looks under this complexity but still want a reply from a CA forum to be aware on the legal front

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 17 February 2010

The form 15G gives a declaration that "my / our income from dividend / interest on securities / interest other than interest on securities/units/amounts referred to in clause (a) of sub-section (2) of section 80CCA or the aggregate of such incomes, computed in accordance with the provisions of the Income-tax Act, 1961, for the previous year ending on _________ relevant to the assessment year _______ will not exceed the maximum amount which is not chargeable to income-tax. So going by the literal interpretation it seems that net taxable income needs to be considered as tax is payable on net income after deduction under chapter VI - A. So in my view the form can be given to the banker for no deduction of TDS.

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Taxation of Interest on Bank FDs

1. While Form 15H is meant for senior citizens, 15G is for any other individual.

2. Form 15G / 15H can be submitted only if the tax on your total income is nil. In other words, you can’t submit a Form 15G / 15H if you’re already a tax payer.

3. New Form 15G / 15H has to be submitted for each FY.

4. An individual who is liable to pay tax can apply in Form 13 to Assessing Officer (as per Section 197) to obtain a certificate of lower rate of tax or no tax as may be appropriate.

5. According to amendment made by Finance Act 2009, the requirement of submission of PAN is also made mandatory for those submitting declaration in Form No 15G / 15H (effective from April 1, 2010). In other words, in the absence of PAN, the 15G / 15H declaration would become invalid.

regards,

ratan

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