Tax on fixed deposit

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This query is : Resolved

Avinash (Querist)

29 January 2013 Dear All,
I have query regarding tax computation.
Let my Salary income is Rs.1.80Lac PA. I have taken FD of Rs.2Lac @10% PA tenure 3years.

CASE -1 Interest on Accrual Basis.

Interest would be Rs.20000/- PA. So, my total income is below exemption limit hence no TAX.

CASE-2 Interest on Receipt Basis.

In third year My total income would be Rs.2.40Lac (1,80,000+60,000 interest), consequently I have to pay tax on Rs.40000/- @10%.

My query is,
when I go with accrual basis there is no tax but in receipt basis I have to pay tax Rs.4000/-
Pls. let me know what is the correct method.

Assumption :-
TAX rate & income is same as current year.

Thanking
Avinash

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

29 January 2013 You should follow accrual basis only. It will be easier for you to claim TDS on FDR Interest.
.

Avinash

Avinash (Querist)

29 January 2013 Dear Sir,
Thanks for reply, suppose I am in 10% of tax slab & go on accrual basis, I have to pay tax @10% But bank will deduct TDS & report this income as well as TDS in the last year only. Could I get refund in the last year of FD tenrue.

Thanks,
Aviansh

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

29 January 2013 Bank has to deduct TDS on accrual Basis as per TDS rules, as depositors account is credited on quarterly basis by the amount of interest accrued.
.
In case bank deducts tax at last-it'll be bank's mistake. Still you will be eligible to get the credit on the basis of tax deduction made by the bank. There will be no problem.
.
But in any case... follow accrual method only.
.

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