Fixed deposit in any bank offers you a good amount of return in the form of interest. If you are investing in any of the specified fixed deposit scheme for 5 years or more with a scheduled bank then the amount deposited during the financial year will be allowed as a tax deduction out of the total income for financial year in which such amount has been deposited.
Now the question is whether the interest amount is taxable or not. If your answer to this question is yes, then how am I going to consider such income tax provisions on fixed deposit?
TDS on Fixed Deposit
The bank where you have fixed deposit will deduct TDS on a periodic basis from the interest amount that has been credited to your account. Such interest will be considered for TDS only when it crosses the limit of Rs. 10, 000 during a financial year.
Please remember Rs. 10, 000 is not a exempted income for you i.e. if your income including this interest amount crosses the basic exemption limit of IT Act then you need to consider such interest amount and pay your tax accordingly.
If during the financial year your income is not taxable then in that case you need to submit form 15G/Form 15H to the bank for not deducting tax on fixed deposit.
If the bank has already deducted certain amount from interest on fixed deposit then you need to claim refund from the department while filling your IT return. While claiming refund, mention your bank account number and IFSC code clearly.
If you do not have PAN number while opening a fixed deposit then you can fill up form 60/form 61 for opening a bank fixed deposit. But if your interest amount crosses Rs. 10, 000 and you have not submitted form 15G/15H then tax on fixed deposit will be deducted @ 20% on the interest amount after crossing Rs. 10, 000.
Other than interest on fixed deposit, you will not be taxed on the amount that you deposited at the time of withdrawal. However if you have claimed tax deduction under section 80C and withdrawn such amount before 5 years from the first date of fixed deposit then deduction allowed earlier will be withdrawn.
If your income during the financial year including these interest amount from fixed deposit does not exceed the basic exemption limit of IT Act then you are not liable to pay tax on interest on fixed deposit. But the question is how bank will know this thing.
To inform bank for non deduction of tax on interest income on fixed deposit, we need to fill up form 15G or 15H and submit it to the concern person is bank.
These forms are introduced to reduce the process of deducting TDS by the bank and then to claim refund by assesses.
As specified in IT act, after receiving form 15G/15H the bank will not deduct tax on fixed deposit. Please remember that the validity of form 15G or 15H is only for a year.
Next year you have submit the form again to the concern bank or else they will start deducting tax on fixed deposit.