TDS on term deposit when estimated interest exceeds 10000,but interest paid does not exceed 10000

POSTED BY neela ON September 5, 2013 10:13 am COMMENTS (6)

Sir,

My estimated yearly term deposit interest for F/Y 13-14 is more than 10000/-. The interest credited for the quarter ended june 2013 is less than 10000. But the bank has still deducted tax on the interest credited on 30.06.2013. Is this right? I have read in rule 194A of IT act that TDS is to be deducted the day the interest “paid/accrued” exceeds 10000. Hence the bank should not have deducted tax on 30.06.2013. If the bank is correct, please provide some government rule that supports it.

6 replies on this article “TDS on term deposit when estimated interest exceeds 10000,but interest paid does not exceed 10000”

  1. Dear Neela, in your case, I assume your FD is qtly interest pay out option FD. So the total interest which is to be paid to you ‘ll be more than 10K & hence bank has rightly deducted TDS for your projected interest.

    From your own logic, Till Sept 2013, there should not be any TDS but for Dec & March pay out there should be TDS. Well advance tax asks the deductor to calculate the projected income also & deduct tax accordingly.

    thanks

    Ashal

  2. Vaibhav Goyal says:

    Hi Neela,

    Am no expert in tax matters, neither in Banking (as yourself). But just adding my 2 cents to this discussion –

    What your bank did, I feel its just like paying advance tax. Even in adv tax, one calculates the tax based on an ‘estimated’ income for the year rather than actual.
    Hence this does not appear wrong.

  3. Dear Neela, do you mean to say, if one is having a cumulative Fd of 10Y for 10L Rs. there should not be any TDS as interest is not credited into account? 🙂

    thanks

    Ashal

    1. neela says:

      Sir,
      I wish you had read my case properly. I repeat it once again.

      My bank has paid interest of Rs.5000/- on my fd for the period 01.04.2013 to 30.06.2013.

      They have deducted tax on this interest of Rs.5000/- on 30.06.2013.

      Section 194a clearly mentions that they can deduct tax only when the interest paid to me in the current financial year exceeds 10000/-.
      So, my question is “Is the bank correct in deducting tax on Rs.5000/-“?
      When i asked the bank, they are saying that since my expected interest for the period 01.04.2013 to 31.03.2014 is likely to exceed 10000/-, they have deducted tax on 5000/- on 30.06.2013.
      My second question is “if the bank’s answer is correct, is there any law supporting the bank’s answer”?
      For your information, i myself am a banker and i am surprised that my bank has deducted tax on 5000/- i.e. when the interest that they have paid to me has not yet exceeded 10000/-.

  4. Dear Neela, thee word ‘accrued’ justifies the bank’s TDS. 🙂

    thanks

    Ashal

    1. neela says:

      Sir,
      the word “paid/accrued” in 194A means interest which has been credited to my account or interest which has been paid by cash/cheque.
      In my case the interest paid is less than 10000 and the estimated interest for the period 01.04.2013 to 31.03.2014 is more than 10000. So when the interest paid to me is less than 10000, how can the bank deduct tax on it?

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