Tax on fixed deposit

This query is : Resolved

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

Avinash

Avinash (Querist)
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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)
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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.
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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.
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But in any case... follow accrual method only.
.

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