Legal Question in Banking Law in India

QUESTION RELATED TO BANKING MATTERS

WHETHER FOR A FIXED DEPOSIT A/C (Cumulative Interest Mode) in which� yearly accrued interest is shown and TDS thereby is yearly deducted by bank and also interest and related TDS is shown by customer while filing income tax returns.But again at the time of maturity bank is deducting TDS on the maturity amount.WHETHER THIS IS PROPER�.

MAIN POINTS THAT HAVE BEEN RAISED BY ME

1)Under section 194A of the Income-tax Act. it is natural that banks will deduct tax on accrual basis. But� if they again� deduct at the time of maturity, then it is wrong.� If there is deduction at the time of accrual, only the left over portion is deducted at maturity.This is true when for maturity� FD rolls over into the next year. Bank cannot deduct more than 10% TDS overall.

2)Banks provide for interst annually as accrued and deposit the TDS annually on the basis of interest given.THIS INTEREST IS NOT ACTUALLY PAID YEARLY� TO THE CUSTOMER.In this particular case apart from yearly deducting TDS� they also levied TDS at the time of maturity on Maturity Amount(even more) and the amount given on maturity is less than what it should be.ACTUALLY IT IS A CASE OF DOUBLE TDS CHARGED

3)Banks deduct TDS on interest income when it is accrued and not when the FD matures.So if we have a FD for 3 years � banks shall deduct TDS at the end of each year on the basis of acrued interest

4)Interest on fixed deposits are calculated annually or on a cumulative basis. However, the same FD is taxed on an accrual basis,althoughThis interest is not actually paid yearly� to the customer . Thus, the timeline on reception of the interest on� FD isn�t a factor for tax to be imposed upon it. We will have to pay the corresponding tax at the end of the financial year, and even in situations when the interest isn�t taxable, it must be displayed on our IT returns.

5)TDS deduction is mandatory but maximum deduction is 10%.

Therefore conclusion should be� during maturity NO FURTHER TDS SHOULD BE DEDUCTED except for the left over portion is deducted at maturity.This is true when for maturity� FD rolls over into the next year(AFTER MARCH )

� � � � � � � � �IN THIS PARTICULAR CASE A FD A/C WAS OPENED at� one SBI branch.Apart from regularly deducting TDS on accrual basis,AGAIN HAVE IMPOSED TDS ON TOTAL MATURITY VALUE.

PLEASE OPINE


Asked on 7/12/15, 9:23 pm

2 Answers from Attorneys
Fca Prashant Chavan Expert Edge LLP

13.07.2015

Dear Sir / Madam,

The Bank is supposed to deduct Tax Deducted at Source (TDS) on interest accrued or interest paid on the Fixed Deposit (FD) depending on the tenure of the FD during the financial year as per the Income Tax Act i.e 01st April to 31st March; if the10% total annual interest income (accrued or paid) exceeds Rs. 10,000/- (Rupees Ten Thousand Only) and the Fixed Deposit holder has not submitted Form 15G / Form 15H to the Bank in case the FD holder's Annual Income during the financial year is below is exempt from tax (below the minimum annual income enacted and stipulated for that financial year).

The Bank is supposed to deduct 10% (Ten percent) TDS provided the FD holder has submitted a valid Permanent Account Number Card (PAN) to the Bank. As per the latest Income Tax regulations, if the PAN Card is not submitted or if it is found to be incorrect or invalid, the Bank is supposed to deduct 20% (Twenty percent) TDS.

To conclude as in your case, in the unlikely event of the Bank having erred by wrongly deducting the TDS twice, the onus is on the Bank to refund the TDS amount wrongly deducted on the FD by the Bank to the FD holder.

Regards,

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Answered on 7/13/15, 12:05 am
Fca Prashant Chavan Expert Edge LLP

13.07.2015

Dear Sir / Madam,

Please read the first sentence in my reply as "The Bank is supposed to deduct Tax Deducted at Source (TDS) on interest accrued or interest paid on the Fixed Deposit(s) FD based on the tenure of the FD during the financial year as per the Income Tax Act, i.e. from 01st April to 31st March of the following year, if the total annual interest income (accrued or paid) exceeds Rs, 10,000/- (Rupees Ten Thousand Only) and the Fixed Deposit holder has not submitted Form 15G / Form 15H to the Bank (in case the FD holder's is entitled to submit the relevant Form if his / her Annual Income during the financial year is below the exempt limit from tax is below the minimum annual income as enacted and applicable for the Assessment Year pertaining to that financial year).

The Bank is supposed to deduct 10% (Ten percent) TDS provided the FD holder from the interest accrued or credited in excess of Rs. 10,000/- (Rupees Ten Thousand Only) for the financial year if the FD holder has not submitted the above Form if entitled, provided the FD holder has submitted a valid Permanent Account Number Card (PAN) to the Bank. As per the latest Income Tax regulations, if the PAN Card is not submitted or if it is found to be incorrect or invalid, the Bank is supposed to deduct 20% (Twenty percent) TDS on the interest amount.

To conclude, as in your case, in the unlikely event of the Bank having erred by wrongly deducting the TDS from the same interest amount twice, the onus lies on the Bank to submit a written explanation to the FD holder and if the error is established, to refund the TDS amount wrongly deducted on the FD by the Bank to the FD holder.

Regards,

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Answered on 7/13/15, 7:39 am


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