Fixed Deposits have always been Indian household favorites, even though when you make a Fixed Deposit with a Bank the entire interest income is taxable. Secure, easy and liquid, we all have some FDs. This interest income usually is a part of the income head ‘Income from Other Sources’.
We do end up choosing FDs that give a lump sum at the end of the term. This involves compounding of our interest and obviously the returns are higher.
What happens when you are sitting at the end of the financial year and you need to pay tax on your Interest Income?
Since banks follow accrual system of accounting, banks book an expense relating to your FD income before the year closes. When they book the FD interest they are liable to deduct the TDS and deposit that with the government. Even though that interest may not have been paid to you yet. This TDS deducted against your FD shows up in your Form 26AS. What this simply means is – the bank has calculated the TDS amount on the interest income that pertains to the financial year and already deposited on your behalf to the government. While the FD may not have matured yet and no payouts are done to you, TDS on the income has been deducted. Therefore, the wise thing to do would be to calculate the interest income that pertains to the financial year, and add it to your Return for the current year (though you may not have received any thing) under Income from Other Sources. Use your Form 26AS to arrive at the interest income for the year. In this way – not only will income that belongs to a particular year will form part of return of that year – your return will be in sync with your Form 26AS and your bank’s details.
Additionally, if you are getting the benefit of a higher interest rate (and your tax bracket is lower than 30% or you are a senior citizen with higher minimum income exemption limit) not spreading your interest income over its tenure may possibly push you up in a higher tax slab.
Have you filed your IT return yet. It’s the final countdown to the deadline.
GO and file NOW!