I have to pay more as TDS for fixed deposits (FDs). Banks provide for interest 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 regularly deducting TDS at the time of maturity, they also levied TDS and the amount given on maturity is less than what it should be.
I opened an FD with a sum of Rs1 lakh on 25 May 2009. The maturity date was 25 May 2014 with rate of interest 8.5% on cumulative interest basis. Maturity value was Rs1,52,279. After this FD matured, I renewed it for two years 11 months with interest payment on quarterly basis at interest of 9.25% with a base value of Rs1,46,287. TDS of an amount of Rs1,52,279 minus Rs1,46,287 =Rs5,992 was then deducted.
Since the FD matured on 25 May 2014, the maturity amount was Rs1,52,279. This means, I earned an interest of Rs52,279 and would have to pay a TDS of Rs5,385. Since the bank had already deducted Rs4,956 as TDS, they should have collected the remaining Rs430 from me. However, on maturity, the bank deducted further Rs5,992 from my account as TDS. This means for the same deposit, the bank deducted Rs10,948 from me. The concept of 10.3% TDS at bank end is also not correct. If someone falls in 20% tax slab, he will have to pay the extra tax as self assessment tax during return filing.
Ameet Patel’s Reply:
I too have faced headaches when my FD rolls over into the next year. Therefore, I have stopped placing FDs with banks for more than 360 days. I always renew my FD on 1st April and ensure that it matures somewhere in the last week of next March. Of course, I get lower interest because of this but I avoid the headaches relating to TDS.
Banks have to mandatorily deduct tax @ 10.3% because that is the rate prescribed under Section 194A of the Income-tax Act. Further, they are forced to deduct tax on accrual basis. Therefore, in the example that you have given, the bank has correctly deducted every year. However, if they have deducted again at the time of maturity, then it is wrong. You need to get the bank to rectify the mistake. Principally, the working that you have given is correct. I have not verified the arithmetical accuracy.
Your last statement—that because you are in the 20% bracket, it is wrong to deduct tax @10%—is not right. As mentioned above, banks (or for that matter any deductor) have to follow the Section of the Act. Not all taxpayers fall in the higher tax brackets. The government has to keep a cut-off rate so that it is not unfair to a larger section of the tax-paying community. It is in this background that a lower rate of 10% is kept. If you, or any other taxpayer, fall in a higher bracket, the balance tax has to be paid by way of advance tax.
This principle holds good for all payments (like rent, professional fees, contracts, etc). You may appreciate that, for a bank, it is not possible to know which bracket you, or any other investor, falls. So they would not be able to deduct the full tax in each case even if they want to.
You need to take up the matter with the concerned bank and, if they rectify the mistake, well and good. If they don't, in any case you will get a TDS certificate and also the credit in your Form 26AS. Based on that, you need not pay the differential tax (considering that you are in the higher slab of 20%). Either way, you will not be put to a disadvantage.
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