Banks and cooperative credit societies are the places which we generally keep our money. It can be in saving accounts, recurring deposits or fixed deposits. There are also other schemes run by the government such as senior citizen saving scheme, PPF, NSCs, etc. However, the first thing everyone plan while making an investment is that the interest income is not affected by Tax Deducted at Source (TDS). There are various Tax Deducted at Source TDS related provisions which are applicable to such interest income. It will also help you to understand when you will get your interest without TDS deduction and when will the tax be deducted.
Which investments are exempted from TDS?
Irrespective of the amount of interest, there are certain investments or deposits where tax is not deducted as per Income Tax Act. Whether it is saving account at banks, cooperative bank or co-operative credit society, TDS is not deducted on any saving interest. The interest paid to the shareholder of a cooperative society is exempted from TDS irrespective of the quantum of interest. Any amount deposited with post office like fixed deposits, saving accounts, recurring accounts or monthly schemes does not deduct TDS on the paid interest. TDS on PPF is not applicable as its interest is exempted from tax.
Further, saving certificates like Kisan Vikas Patra and Indira Vikas Patra are also not subject to TDS.Where is TDS provision applicable? Apart from the above investment or deposit platforms, there are other platforms where TDS provisions become applicable after its aggregate limit cross a certain limit. The interest payer will deduct TDS if the interest income of all fixed deposits with banks, cooperative banks, credit societies etc. exceeds a limit of Rs. 10,000/-. If the bank comes under core banking the amount will be calculated referring the aggregate of all the fixed deposits at various branches, or else it will be calculated referring all the deposits in a branch.Normally, everyone believes that fixed deposits made with the post office or the saving certificate without any ceiling are not subjected to TDS.
However, if the interest crosses the aggregated limit then the payer is liable to pay TDS. For instance – the bank or post office will deduct TDS at a rate of 10% if your Senior Citizen Saving Scheme interest exceeds Rs. 10,000 per annum. However, the upper ceiling is Rs. 5,000/- per annum if the deposit is with a party other than a bank, government schemes or cooperative society.
How to avoid deduction?
A person can exempt TDS on such interest by submitting Form 15G and 15H, provided he should satisfy the criteria set by the Income Tax Law. In such cases, the bank will not deduct the TDS which is at the rate of 10%, from your interest, even though your interest exceeds Rs. 10,000 per annum.
While filling Form no. 15G or 15H you should not fail to furnish your PAN to your bank. If you fail to do so, the bank is liable to deduct tax at the rate of 20%. You should also keep in mind that you give the PAN number correctly when you fill the form. It will not only benefit you TDS exemption on your interest but also will save you from deducting TDS at the rate of 20%. You can also be subjected to Rs. 10,000/- penalty for the same.
Further, you need to furnish your Permanent Account Number (PAN) to the bank to avoid TDS deduction at the rate of 20% instead of 10%. So, even if you are fine with the tax deduction from your interest you should link your PAN with your account number to avoid more deduction.
Keeping the various TDS intricacies in mind, plan your investment or deposit to minimize the tax deduction on your interest. It will also free you from all the hassles to claim the refund if your income is below taxable limit.