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treatment of tds on intrest

GAURAV BEHL (CA-FINAL ) (228 Points)

30 October 2009

there are diffrent schemes from banks offering intrest on a certain amount as deposit on which intrest is payable after a definite pariod say 5 years.. if the deposit is withdrawn in between the period no intrest shall be paid..intrest is credited to the customer a/c on accrual basis and accordingly tds is deducted and paid to the central govt. a/c.now the problem arises when a customer withdraws the amount between that period say in the 2 nd year..no interest is payable to the customer. and hence intrest credited to his a/c is reversed. but the problem is with the treatment of tds already deposited to the central govt. a/c .. who is entitled to claim that tds..and how can he claim that... plz advice..

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8 Replies

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14497 Points)
Replied 30 October 2009

when Bank deduct TDS and deposit to govt. he provide TDs certificate. on TDS certificate you can claim it.

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GAURAV BEHL (CA-FINAL ) (228 Points)
Replied 30 October 2009

tds certificate will not b provided by the bank to the customer as there is no amount to his credit for claiming tds.. how can customer claim tds if bank has not given any credit of intrest to him

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14497 Points)
Replied 30 October 2009

Then you are confused . clear from bank . no TDs deducted by bank.

MURAGAIAH MELANGI (ACCOUNTS MANAGER) (51 Points)
Replied 30 October 2009

Originally posted by :Ram Avtar Singh
"	Then you are confused . clear from bank . no TDs deducted by bank.	"

Yes, you are right Mr. Ram Avtar Singh, Because without Interest Credit how the bank will deduct the TDS, once they deducted, bank shold have deposit to the Central Govt., after that the bank should have file the TDS Returns, They must have given the TDS Credit to the Customer, advice me if am wrong

MURAGAIAH

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 30 October 2009

The bank will credit the account of the customer for interest every year as it has to book the income on accrual basis. And if the interest so credited is above the threshold limit for TDS, it shall deduct the TDS and issue a TDS Certificate to the depositor. In this case, the depositor shall also book the income accrued year by year as per the TDS Certificates. Say suppose in any year, the depositor withdraws the FD, then whole of such interest shall be reversed by the bank and the depositor shall also reverse the interest accrued till date. On this transaction, there shall be no TDS impact. In the earlier years, the TDS claimed had been availed by the depositor on yearly basis. Further, the tax so deducted towards the interest, which is now reversed, shall be recovered from the depositor from the principal amount as whole of the interest is reversed and the bank has deposited the TDS to the Govt. and the depositor has taken its benefit.

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Sunil (Trader) (2611 Points)
Replied 30 October 2009

When reversing interest credited on account of premature withdrawal, TDS already done is usually deducted from the Principal amount and the balance given back to the depositor. Depositor will have no interest to book in his returns and accordingly he will claim refund or adjust against his tax payable under other heads of income. He will get TDS Certificate from bank that will be based on Interest Credited. He will have to take a printout of the FD Account Number that will not only indicate the Interest paid and Tax Deducted but also the interest reversed so he can have proof of no interest earned. However, I am not sure how to make adjustments if the reversal is done in the subsequent accounting year, because in the revious year he may have returned interest income and claimed the TDS.