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Is fd with auto-reinvestment taxable ?

Ram.J (Others) (61 Points)

26 October 2015

Instruction is given to the bank to reinvest both principal & interest every year as well as 15G is submitted. Is it required to show interest under other source of income in this case as long as the principal or interest is not taken to the savings account ?

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8 Replies

S. Shiroor (Others) (1207 Points)
Replied 26 October 2015

it is case of "Amt accrued but not credited " . When u close the FD and int is credited in savings bank then only the TDS is deducted. I have asked about this to my bank.

Miss Rinkal (Student) (1304 Points)
Replied 26 October 2015

Yes even if it is kept on auto reinvestment, there is a maturity amt provided and maturity period even though you are opting for reinvestment. And the same needs to be considered either on accrual basis or on maturity I.e likely maturity.

For that you can check it very easily by getting balance and interest certificate for the month whether how is the interest credited.

Eg: If an FD is created for a period of 1 year in 1 st July 15 and have opted for reinvestment option, then interest can be taken either for said year on 30 June 16 or interest for current period up to 31 march 16 is to taken as income from other sources. In any case, it should be either on 31 march and 30 June respectively for 2 ay or directly on maturity date I.e 30 June. But in any case it needs to be shown for the ay.

It cannot be that since the assessee has opted for reinvestment, that interest is not to be recognized.

V Arun (student) (53 Points)
Replied 27 October 2015

It's better to show.banks deduct tds on fds on non receipt of from 15g/h as a procedure on auto reinvestment also irrespective of whether interest is received in savings a/c or not.

Vishal Goel (Chartered Accountant) (1688 Points)
Replied 27 October 2015

Hello, If interest income for a year is reinvested in the deposit and is paid on maturity, it is wise to include it in your income tax return for that year and pay tax on it each year rather than on maturity. Yes, you are required to show interest as other source income.. Interest amount is = Maturity value – FD amount

Rajesh Kumar Gupta (Senior Divisional Manager) (714 Points)
Replied 27 October 2015

But if 15 G is submitted and found by bank in order then no question of including accrued interest income will arise as assessee's income including interest under question is not subject to income tax as it falls within exemption limit.

Miss Rinkal (Student) (1304 Points)
Replied 27 October 2015

@ Rajesh Kumar Gupta:

Submission of 15g does not mean that income is exempted from showing in computation of total income. The purpose of 15G is that no tax to be deducted for the said income earned.

Return is to be filed mandatorily when gti exceeds the basic exemption limit

and 15g is submitted when interest income is below the basic exemption limit and there is nil tax on total income.

Hope you get it what I mean

SK ABDUL MOJIB (ACCOUNTS MANAGER) (26 Points)
Replied 27 October 2015

Hello,yes taxable,you can get a certificate from the bank about the principal amount and intrrest credited on your account. The bank must have deducted tds in interest amount and deposited on your pan number if you had provided to the bank 15g form. Then bank will give you a 16a form. When return your income tax you may adjust your tds or may claim refund from the department.