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Is interest from bank deposits taxable?

17 April 2012

Hi,

I am a salaried individual falling within the 20% tax bracket. I have following queries with respect to tax on deposits

1. Is the interest income from fixed / recurring deposits in banks taxable?

2. Is there any standard exemption (example: Rs.10,000/-) exists up to which no tax on interest income needs to be paid?

3. My wife is a home maker. I have invested Rs.1 lac in her name in bank as a FD. Do I need to pay tax on interest income of behalf of my wife?

4. Is there a legal way to avoid tax on interest income? Some people have suggested to open FDs in different banks to avoid TDS but is that legal at all?

Regards,

Praveen

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18 Replies

Murtaza I Bhagat (Tax & Finance Consultant) (10523 Points)
Replied 17 April 2012

1, yes fixed deposit interest & recurring interest is taxable

fixed deposit interest is morethan 10,000/- bank will deduct tds on it @ 10% if pan given otherwise @ 20%

2. yes, as above exemption of non deduction is 10,000/- but it is a taxable component add to gross income

3. if your wife income for f.y. 2012-13 is not morethan 2 lacs then you can avail benefit of 15G which you need to submit to bank for not do deduction

4. no there is not legal way to avoid its not good thing for tax saving you have to become smart as your case you have did fd of Rs.1 lacs and suppose interest around 10K 15G is the best opition till 2 lacs of income

my advice is not to do any fd on your name/PAN. because you are already in 20% so if you do fd then bank will deduct 10% and remaining you will have shown in your income and need to pay 10% additional tax so total 20% tax liability

so better to invest in your wife name/PAN

it will help you to understand the savings by ideally not by avoiding or legally

1 Like

(Guest)

Though deposit made in wife's name, if source of income is yours, then its definitely taxable,

1 Like

Vinod (CA in Practice) (445 Points)
Replied 17 April 2012

Your wife's interest income has to be clubbed to your income u/s 64(1). It shall not be taxable in the hands of your wife. It is taxable in your hands.

1 Like

Praveen Athanki (PM) (62 Points)
Replied 17 April 2012

Thank you all for your quick response

Can I avoid tax on FD by opening FD in my mother'sname who has no income of her own?

Regards,

Praveen

Vinod (CA in Practice) (445 Points)
Replied 17 April 2012

Yes, you can avoid tax.

If the FD is in your mother's name, then the income from that shall not be hit by the clubbing provisions.

vinodaca74 @ gmail.com

1 Like

cajun (ca) (24 Points)
Replied 17 April 2012

Fixed deposit interest & recurring interest is taxable under other source of income.

1-> If interest on FD is morethan 10,000/- bank will deduct tds on it @ 10% provided you have given PAN no.

Else bank will deduct TDS @ 20% also this can't be refunded.

2-> There is no provision of TDS on interest upto rs. 10000/

3. if your wife income for f.y. 2012-13 is not morethan 2 lacs then you can claim refund of TDS deducted by filing her return electronically and thereafter caliming refund. TDS deducted acn be seen in FORM 26AS available on tin.nsdl.com

4. This is matter of tax planning, In our opinion you should make HUF, in you and your wife name, then your son & wife,s name.

So the benefit is that you will get fresh 190000/ tax free limit on each HUF you made.

You may reach us at www.cajunction.in. For nay additional query.

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CA Rakesh Goenka (CA & CS) (872 Points)
Replied 17 April 2012

yes interest from fixed deposit taxable income.... under the head income from other sources

CA Darshak Shah (Practicing CA) (1889 Points)
Replied 17 April 2012

Well,

As per my opinion, you should properly plan for your taxes and income division as well..

If You are having any child then go for HUF incorporation.

It is easy, simple and smart way to plan for taxes..

If any need, feel free to ask..

Regards,

CA Darshak Shah

Praveen Athanki (PM) (62 Points)
Replied 18 April 2012

Thank you all. Your responses and opinions are very helpful

Goutam Biswas (Assistant) (30 Points)
Replied 06 July 2012

I have a SMART MONEY deposit (Rs. 25000/-) with HSBC for 3 years @ 9% p.a. Contract is there , If I withdraw any amount interest will be charged @ 2% over & above 9%. My question is this, whether the accrued interest @ 9% on Rs. 25000/- is taxable or the excess amount out of my overdraft interest will be taxable ?

Goutam Biswas

oldman240354 @ gmail.com

Goutam Biswas (Assistant) (30 Points)
Replied 10 July 2012

There is nobody to answer against my reply ? ..?

Balaji (Knowledge Seeker) (317 Points)
Replied 13 July 2012

For an individual,the accrued interest @ 9% on Rs.25,000/- would be taxable.You cannot off-set the interest paid on overdraft amount against interest accrued/received on the original deposit.

1 Like