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Tax saving FD

sagar (mathura) (214 Points)

04 October 2015

is normal fd that we open with bank for 5 year is eligible for deduction under 80c if yes what is the treatment in income tax if we made premature withdrawal.

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9 Replies

Priya jain (student) (37 Points)
Replied 04 October 2015

Premature withdrawl is not allowed in five year tax saving fd

Udgam Koomar (Tax Technologist) (1949 Points)
Replied 04 October 2015

Please nore there is a lock-in period of 5 years, Deposits cannot be withdrawn prematurely,Deposits cannot be pledged to secure loan or as security against this FD. You can use this figure to claim 80C for that FY.

Miss Rinkal (Student) (1304 Points)
Replied 04 October 2015

No normal FD are not eligible for deduction u/s 80c. Only tax saving FD are eligible for 80c deduction. Such FD are not eligible for premature withdrawal. Ie. It is for a fixed lockin period

pvvittal (partner) (77 Points)
Replied 04 October 2015

Ms Rinkal What you said is hundred percent corr. On the deposit Banker makes above endosements. Ca PVVITTAL.

sagar (mathura) (214 Points)
Replied 04 October 2015

Is int is taxable on maturity

Miss Rinkal (Student) (1304 Points)
Replied 04 October 2015

That totally depends on the assessee, whether he maintains books on mercantile basis or cash basis. If mercantile basis then to be shown on the basis of fy. And if on cash basis then on maturity

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114215 Points)
Replied 05 October 2015

Not all FD of 5 years are eligible for deduction u/s 80C. The FD should be covered under Bank Term Deposit Scheme 2006. These are specifically issued as Tax Saving FD. Tax Saving FD will also be mentioned in the FD Certificate.

Z ( ) (2960 Points)
Replied 05 October 2015

Although S.145 gives an option to an assessee to maintain the books of accounts on either cash basis or mercantile basis in respenct of income from PGBP and Income from other sources but theres another provision, S.198 according to which "All sums deducted in accordance with the foregoing provisions of this Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received "

Hence personally, whenever there is tax deduction from the interest income , I advice to treat income on mercantile basis only. On FD's normally tax would be deducted by the depositee on mercantile system because as per S.194 A , tax is to be deducted at time of credit of interest income or payment thereof (whichever is earlier)

S.194A(1)Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.......

Naveen Jain (Taxation / Accounts / Audit etc.) (33 Points)
Replied 05 October 2015

Yes all FDR's above 5 years maturity period are not eligile for 80c deduction it needs to be issued according to the provisions of Term deposits as ammended in 2006. And the FDR's that are made for this deduction can't be prematured thus the question of its prematurity dosen't arise.

And in respect of interest income on such FDR's personally I think on the basis of mercantile accounting, interest should be accrued each year accordingly and included in the taxable income for each year accordingly.

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