Understanding the TDS filing requirements for interest income

Posted In | Finance | Accounting Software | India Accounting Tax

Earning interest income from your bank deposits is a common way to grow your savings. However, it's essential to understand that this income is not tax-free. The Indian Income Tax Act mandates that banks must deduct Tax Deducted at Source (TDS) on your interest income if it exceeds a certain limit. This article provides a comprehensive guide to understanding the TDS filing requirements for interest income in India.

 

1. What is TDS on Interest Income?

TDS or Tax Deducted at Source is a means of collecting income tax in India. It is managed by the Central Board for Direct Taxes (CBDT) and falls under the Indian Revenue Services (IRS). In the context of interest income, TDS is the tax that banks deduct if your interest income from a savings bank account, fixed deposit, or recurring deposit exceeds a certain threshold.

 

2. TDS Threshold for Interest Income

The TDS threshold for interest income varies depending on the type of deposit. For savings bank accounts, the TDS threshold is ₹10,000. This means that if your interest income from all your savings bank accounts with a particular bank exceeds ₹10,000 in a financial year, the bank will deduct TDS. For fixed and recurring deposits, the TDS threshold is ₹40,000 (or ₹50,000 for senior citizens).

 

3. Rate of TDS on Interest Income

The rate of TDS deduction on interest income is 10% if the bank has your PAN details. If the bank does not have your PAN details, the TDS rate is 20%. However, no surcharge, health and education cess is applicable on the TDS amount.

 

4. Filing TDS Returns

If the bank has deducted TDS on your interest income, it is mandatory for the bank to issue you a TDS certificate. This certificate, also known as Form 16A, will contain details of the TDS deducted and deposited with the government. You need to include this TDS amount in your income tax return.

 

5.Claiming TDS Refund

If you believe that the bank has deducted more TDS than it should have, you can claim a refund while filing your income tax return. You will need to provide details of the TDS deducted as per your Form 16A and calculate the correct tax liability. If the TDS deducted is more than your tax liability, you will get a refund of the excess TDS.

 

Understanding the TDS filing requirements for interest income is crucial to ensure compliance with tax laws and avoid unnecessary tax liabilities. Keep in mind that even if your total income is below the taxable limit, the bank will still deduct TDS if your interest income exceeds the threshold. Therefore, it's essential to submit Form 15G or 15H to the bank, as applicable, to prevent TDS deduction.