Category Archives: TDS

Income Tax on Recurring Deposit in India

tds on recurring deposit in india

Are Recurring Deposits tax free in India?

To clear this confusion, below I have penned down all the must know information about Recurring Deposit.

tds on recurring deposit in india

What is Recurring Deposit?

Recurring Deposit is a SIP under which you have to pay certain agreed amount for a particular time period. Unlike fixed deposit where a lumpsum amount is deposited at once, in recurring deposit a regular monthly amount is deposited. You have to select the term and amount of the investment.

What are Tenure, Interest Rate and Minimum Deposit of Recurring Deposit?

Tenure

Most of the Banks offer Recurring Deposit of 6 months to 10 years. The tenure can be in multiple of 3 months.

Installment

Almost all banks offer this scheme and you can invest as little as Rs 5 with public sector banks or, Rs 500 with private banks, though some banks may have higher limitThe amount of installment and number of installments cannot be altered once the account is opened.

An Investor can ask bank to deduct the stipulated amount from savings or current account every month. Deposit can also be made through internet banking.

Interest Rate

Recurring Deposit offered by banks carry similar interest rate to fixed deposit for similar tenure. However some banks like Bank of India gives 0.5% extra interest rate for Recurring Deposit as compared to Fixed Deposit for similar tenure. Interest on Recurring Deposit is compounded quarterly.

Who Offers Recurring Deposit Schemes in India?

Only Banks and Post-Offices are authorized to offer Recurring Deposit Schemes. Any other organizations like companies, NBFCs are barred from offering RD Scheme.

Who can Invest?

All Resident Indian and HUF are eligible to open Recurring Deposit Account with any bank or post-office. Even NRIs are also allowed to open Recurring Deposit Account through NRE Account but with bank not post-office. Account can be opened individually or can be applied jointly with any family member, even a minor.

Is interest earned on recurring deposit taxable?

Yes, Recurring Deposit is taxable. A lot of people think that Recurring Deposit is tax-free but it’s not true, interest earned on Recurring Deposit is taxable under the head “Income from Other Sources”. Unlike Fixed Deposit where tax is deducted from interest in the form of TDS, onus of paying tax in Recurring Deposit is totally upon the Investor. Although the interest is received with the principal amount on the maturity but tax is to be paid on the interest accrue every year.

If RD is in the name of minor then the interest accrue shall be clubbed with the income of the parent with higher income.

What are Recurring Deposit benefits in India?

Interest Rate of Recurring Deposit is similar to Fixed Deposit, thus it is preferred investment scheme for small investor who cannot deposit a huge amount at once in Fixed Deposit.

Further, since there is no TDS, assessee who has income below the taxable limit does not need to file return for refund.

Loan/Overdraft upto 90% is provided by banks against the amount available in Recurring Deposit Account. The interest is generally 0.5% to 1% more than that offered to Recurring Deposit.

Points to Ponder

  • In case of default in payment of installment, banks can levy a penalty or even can close the account if the default goes over the limit (mostly 6 months). Although the deposited amount will be given back to the investor.
  • Recurring Deposit can be revived by paying the dues within one month from the last default.
  • Premature withdrawal attracts penalty like Fixed Deposit (1-2 percent).
  • A recurring deposit account has a lock-in period of one month.
  • Premature closure in less than a month will not earn interest.

TDS Rate Chart for FY 2014-15 (AY 2015-16)

TDS Rate Chart

Frequently Used TDS Rates & Related Provisions

Financial Year 2014-2015 (AY 2015-2016)

A new section 194DA has been introduced in Budget 2014 under which sum received from insurance company will be liable to TDS at 2%.

Read more: Tax on Insurance Maturity Policy

I have not added section 194DA in the table below since it is not yet passed.

TDS Rate Chart

Section Nature of Payment Threshold Limit Individual/HUF Others
193 Interest on Debentures Rs.5,000 p.a. 10% 10%
194 Deemed Dividend - 10% 10%
194B Lottery/Cross Word Puzzle Rs.10,000 30% 30%
194BB Winnings from Horse Race Rs.5,000 30% 30%
194A Interest from Banking Company Rs.10,000 p.a. 10% 10%
194A Interest from other than banking company Rs.5,000 p.a. 10% 10%
194C Contractors (including advertising & sub-contractor) Rs.30,000 single transaction or Rs.75,000 p.a. 1% 2%
194C Transport Contractors provide PAN and engaged in the business of plying, hiring or leasing of goods carriages NIL NIL NIL
194D Insurance Commission Rs.20,000 p.a. 10% 10%
194EE Payments out of deposits under NSS Rs.2,500 20% -
194F Repurchase of units by MF/UTI Rs.1,000 20% 20%
194G Commission on sale of lottery tickets Rs.1,000 10% 10%
194H Commission or Brokerage Rs.5,000 p.a. 10% 10%
194I Rent of Land and Building Rs.1,80,000 p.a. 10% 10%
194I Rent of Plant & Machinery and Other Equipments Rs.1,80,000 p.a. 2% 2%
194IA Transfer of Immovable Property other than Agriculture Land (w.e.f. 1-6-2013) Rs.50,00,000 1% 1%
194J Payment for professional services, technical services & royalty (Note-3) Rs.30,000 p.a. 10% 10%
194J(1)(ba) Payment to directors any remuneration or fees or commission by whatever named called if the same in not covered u/s 192 - 1% 10%
194LA Compensation on acquisition of immovable property Rs.2,00,000 10% 10%
  •  Note -1: No surcharge and education cess to be added while deducting TDS
  • Note -2: As per Section 206AA, TDS is required to be deducted @ 20% if the deductee does not possess OR fails to furnish PAN No.
  • Note -3: Notification no. 21/2012 dt. 13.06.2012 – TDS is required to be deducted on acquisition of software u/s 194J if conditions stated therein are not satisfied.
  • Note -4: Due date of TDS payment is up to 7th day from the closing date of month in which Tax has deducted and 30th April if paid or credit in the month of march otherwise Interest of late deposit  will be liable @ 1.5% for each month of delay.

Frequently Used TCS Rates & Related Provisions

Financial Year 2014-2015 (AY 2015-2016)

The Tax Collection at Source Rates for the Financial Year 2014-15 is tabulated below:

Sl.No. Nature of Goods Rates in %
 1 Alcoholic liquor for human Consumption 1
 2 Tendu leaves 5
 3 Timber obtained under forest lease 2.5
 4 Timber obtained by any mode other than a forest lease 2.5
 5 Any other forest produce not being timber or tendu leaves 2.5
 6 Scrap 1
 7 Parking lot 2
 8 Toll plaza 2
 9 Mining & Quarrying 2
10 Minerals, being coal or lignite or iron ore 1
11 Bullion or jewellery (if the sale consideration is paid in cash exceeding INR 2 lakhs) 1

Tax on Insurance Policy Maturity Amount

TDS on Life Insurance Policy

Section 194DA: 2% TDS on Life Insurance Policy Maturity Amount

Current Scenario

TDS on Life Insurance PolicyCurrently, under section 10(10D) any sum received from life insurer is not taxable if the premium paid does not exceed 10% of the sum assured. Taxpayer would be liable only if he has paid premium more than 10% of the sum assured in any financial year. In that case the sum received would be added to his income under the head “Income from Other Sources” and taxed as per the slab.

Changes made in Budget 2014

Since there was no TDS, many taxpayers used to avoid the tax by not disclosing it in ITR. To overcome this issue Finance Minister in Budget has proposed to insert a new section 194DA under which TDS of 2% would be deducted by the insurer on the proceeds of life insurance policy (for both unit-linked insurance plans and traditional plans), if the premium paid by assessee exceeds 10% of the sum assured in any financial year. The deduction will be made on the entire amount including any sum allocated by the way of bonus.

However, only the policies maturing on or after October 1, 2014 will come under the purview of this amendment. Also, the TDS will not be attracted if the maturity amount is less than Rs. 1 lakh.

Sum received on the death of the insured is still not taxable.

Text of the Amendment

“In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempted under section 10(10D) of the Act, it is proposed to insert a new section in the Act to provide for deduction of tax at the rate of 2 per cent on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act.”

How to Save TDS on Fixed Deposit Interest?

How to Avoid TDS in Fixed Deposits?

How to Avoid TDS on Fixed Deposit Interest in India?

Last year return of fixed deposit beat both Nifty returns and returns from gold. While investors in gold faced negative returns, the Nifty gained just 6.6 per cent in 2013. Bank fixed deposits pre-tax returns had generated as much 9-9.5 per cent.

Keeping in the mind the above statistics, one more benefit of investing in bank fixed deposit is that it saves your tax as it is covered under section 80C of income tax of India. But not all the fixed deposits save tax, a term deposit of 5 years falls under this category.

Recommended Read:

Investing in a 5 year tax saving fixed deposit only saves tax on the amount of invested, return of fixed deposit i.e. interest is always taxable under the head “Income from Other Sources”.

Bank deducts TDS @ 10% plus 3% education cess (total 10.3%) from the interest earned under section 194A, if the interest earned exceeds Rs 10,000 in a financial year. However, if you do not provide PAN No. to your bank, TDS @ 20% will be deducted (Only if interest on Fixed Deposits exceeds Rs 10,000). 

how to avoid tds on fixed deposit in indiaFor example, if an investor invests Rs 200,000 @ 10% p.a. earning interest of Rs 20,000 in one year. Amount of Rs 100,000 would be deductible under section 80C (being the maximum amount of deduction, subject to investment in other schemes). Bank would deduct TDS of Rs 2,000 from the interest of Rs 20,000 and pay only Rs 18,000 as the interest amount exceeds the threshold limit of Rs 10,000.

 

This made this scheme semi-lucrative but there are few ways with which you can save TDS on Fixed Deposit Interest.

1. Submit form 15G/15H

In case your income is unlikely to cross the maximum amount not chargeable to tax, do not forget to submit the Form 15G or Form 15H (for senior citizens) at the beginning of financial year. This will ensure that no TDS would be deducted by bank on you fixed deposit interest.

Recommended Reads:

2. Invest mid-year or Timing Fixed Deposit

Another way to save TDS on Fixed Deposit interest is to invest in FD in such a way that the interest earned in a financial year would not cross the threshold limit of Rs 10,000.

For example, a 12-month fixed deposit of Rs 100,000 at 10.5 per cent could be started in September instead of April as financial year closes on 31st March. This way, the interest earned would be of two financial years, thus saving TDS on interest earned.

3. Divide/Splitting your investment

TDS can also be saved by investing in FD under the name of different entities. An individual can start one fixed deposit under his/her personal bank account and another one under an HUF account, ensuring the annual interest is less than Rs 10,000 for each FD. This way both will be treated as separate thus saves you TDS.

4. Spread across Branches or Banks

Another way to avoid TDS is by splitting the deposit into separate banks in such a way that interest earned from any of the FDs does not exceed the Rs. 10,000 limit.

For example, if you wish to invest Rs 150,000 in Fixed Deposit at interest rate10% p.a. to earn a return of Rs 15,000. In this case the whole interest is chargeable to TDS as it exceeds the limit of Rs 10,000. But if you split your investment in two parts of Rs 75,000 each and deposit in two banks or two branches of same bank, the interest earned would be same but no TDS would be deductible as it does not crosses the limit.

A point to remember is that you still require filing ITR and showing the income of Rs 15,000 and if your income is taxable and you have to pay tax according to slab you fall in.

How to get TDS Refund?

In case your tax liability comes NIL but bank has deducted TDS, you can claim the refund by just filing Income Tax Return. Before claiming tax refund you should first verify the TDS with you Tax Credit Statement aka Form 26AS.

How to Convert 26AS Text file to Excel File?

Tax-Credit

What is Form 26AS?

Form 26AS is a consolidated Tax Credit Statement issued under rule 31 AB of Income Tax Rules of India to PAN Holders.

Form 26AS shows the amount of Tax Deducted (TDS) from your income and is available as credit against your tax liability, if any.

Let’s say you have a fixed deposit of Rs.10 lacs with Bank of Baroda @ 8% p.a. Bank paid interest of Rs.18,000  (Rs.20000-Rs.2000) after deducting TDS of Rs.2000 under section 194A for the period of 3 months i.e. from April to June and then bank filed TDS return in July. Now after filing TDS return by bank, tax credit of Rs.2,000 will get reflected in your respective Form 26AS.

In case your tax credit is not reflected correctly in your Form 26AS, verify you PAN numbers and ask the deductor to file the TDS statement/correct statement at TIN Facilitation centres.

Form 26AS contains details of:

  • Tax deducted and collected on behalf of taxpayers.
  • Advance tax/self assessment tax/regular assessment tax etc deposited by taxpayers (PAN holders)
  • Payment of refund during the financial year.
  • High value transactions in respect of shares, mutual funds etc

How to View Form 26AS Online?

  • Option 1: Register for viewing Form 26AS by registering for e-filing on https://incometaxindiaefiling.gov.in/. Registration is immediate, without any cost and does not obligate e-filing,
  • After logging in click on My Account tab
  • There will be an option View Your Tax Credit Statement (Form 26AS)
  • It will take you to DOB verification page
  • In the next step it will ask your permission to be redirected to the NSDL site where you have to press the confirm button
  • You will be re-directed to your Form 26AS and you can select the assessment year in the top right corner for which you want to see the details.

Please remember that Assessment year is 1 year ahead of the financial year. For example for FY 2011 – 12, the Assessment Year is 2012 –13

  • Option 2: Through net banking facility of 19 authorized banks. Login to your net banking account and check if this facility is provided.
  • Option 3: Through registration with NSDL

 How to Convert 26AS Text file to Excel File?

First of all open the download text file by putting Date of Birth provided in PAN database in ddmmyyyy format as password.

Now open text file in notepad and follow the steps below:

How to Convert 26AS Text file to Excel File How to Convert 26AS Text file to Excel File How to Convert 26AS Text file to Excel File How to Convert 26AS Text file to Excel File How to Convert 26AS Text file to Excel File How to Convert 26AS Text file to Excel File

After clicking on “Finish” Button, the next screen would be:

How to Convert 26AS Text file to Excel File

 

TDS on Service Tax Amount under New Rule

Tds on Service Tax Amount

 TDS not to be Deducted on Service Tax Component shown Separately

Whether to deduct TDS on Service Tax Amount? This question had always put deductor in difficulty. The question always comes that whether TDS is to be deducted on the entire amount of the invoice i.e. including service tax or only on the payment made towards services i.e. excluding service tax.

Since there was no clarification on this, deductor, to be in safer side tends to deduct TDS on the entire invoice amount including service tax except in the case of rent under section 194I.

Circular No. 4/2008 : CBDT had earlier issued a Circular No. 4/2008 dated 28.04.2008 clarifying that TDS is to be deducted under section 194I of the Income-tax Act, 1961 on the amount of rent paid/payable without including the service tax amount.

Representations/letters have been received by CBDT seeking clarification whether such principle can be extended to other provisions of the Act also.

Verdict on the same question was given by the Rajasthan High Court dated 01.07.2013, in the case of CIT(TDS) Jaipur vs Rajasthan Urban Infrastructure – 2013-TIOL-663-HC-RAJ-IT. Court held that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act.

Circular 01/2014 : Following the above judgment, CBDT vice Circular 01/2014 dated 13.01.2014 has decided that wherever in terms of the agreement/ contract between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source on the amount paid/payable without including such service tax amount.

TDS on Service Tax under New Rule

Two points have to be complied to escape from deducting TDS on service Tax:

  1. Applicable only to resident deductee; and
  2. Service Tax is to be Shown Separately in the Invoice.

Lets see how this new rule works:

Service Tax shown separately Service Tax not shown Separately
Value of Services:        40,00,000

Service Tax @ 12.36%:  4,94,400

Total Invoice Amount:   44,94,400

TDS @ 10%                   4,00,000

(Only on Value of Services)

Value of Services:        44,94,400

Total Invoice Amount:  44,94,400

(Including Service Tax)

TDS @ 10%                  4,49,440

(On Value of Services + Service Tax Amount)

Before this Circular even if you have shown service tax separately, TDS is to be deducted as per case 2 except under section 194I.

Circular 01/2014 dated 13.01.2014 reproduced hereunder:

Download (PDF, 28KB)

Stay granted on levy of fee for failure to file TDS Return u/s 234E

Stay on Late Filing fee of TDS Statement

HC stays Late Filing Fees u/s. 234E for late filing of TDS/TCS Return

Kerala High Court has granted interim stay on Levying of Fees for failure of filing TDS/TCS statement on time under section 234E.

Section 234E which was inserted by Finance Act, 2012 provides a late fee of Rs.200/- per day’s delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS).

The constitutional validity of Section 234E of the Income Tax Act, 1961 has been challenged in the Kerala High Court in the case of Narath Mapila LP School vs. UOI WP (C) No. 31498/2013(J). Vide an interim order dated 18.12.2013, the High Court has admitted the Petition and granted a stay of proceedings for a period of two months.

Stay on Late Filing fee of TDS Statement

Copyright © 2015. Powered by WordPress & Romangie Theme.