TDS on Fixed Deposit, Recurring Deposit and EPF

Along with changes in income tax, budget 2015 has also made some changes in TDS (Tax Deduction at source) for Fixed Deposit, Recurring Deposit and EPF (Employee Provident Fund).

The post discusses these changes:

TDS on Recurring Deposit (RD)

Until now recurring deposit was not subjected to TDS. Budget 2015 has amended this and now banks would deduct TDS at 10% in case the interest on RD is more than Rs 10,000 in the financial year. This interest would be added across all branches of a bank and across all RDs for a customer to calculate the TDS.

This would not lead to any loss to investors as interest paid on RD was anyway taxable. This would only ensure better compliance.

Also Read: How to Fill Form 15G/H to avoid TDS?

TDS on Fixed Deposit (FD)

There has also been change in the way TDS was deducted on Fixed Deposits (FD). Until now only interest across a bank branch was added to arrive at the interest paid. These leads to some people avoid TDS by making FDs in multiple branches of the same bank. Going forward this would change, for calculating interest all FDs across all branches of a bank would be considered for calculating TDS.

For example:

You made two FDs or Rs 1 Lakh each in 2 branches of HDFC Bank @ 9% per annum.

As of today the interest would be Rs 9,000 each in both the branches and hence bank would not have deducted any TDS.

Now with this change the bank would add the interest paid on FD across all its branches to a customer. So the total interest now becomes Rs 18,000 and hence bank would deduct TDs @ 10% i.e. Rs 1,800 and pay the remaining.

Also co-operative bank deposits will also be subject to TDS.

TDS on Premature withdrawal of EPF:

Budget 2015 has also proposed to levy TDS at 10% for premature and taxable withdrawal of funds from EPS, if the payment is more than Rs 30,000 50,000 (changed with effect from June 1, 2016).

In case the PAN information is not furnished the TDS would be deducted as 20%.

How to avoid TDS?

In case your total annual income does not exceed the tax limit, TDS becomes painful as you need to file Income Tax return to claim it back. But there is a solution to this. You would need to submit Form 15H (for Senior Citizens) and 15G (for everyone else with total annual income below taxable income limit) as the case may be.

The 15G/15H forms need to be submitted to all the bank branches where you have made deposits. Also keep in mind that giving incorrect information in these forms to avoid TDS amounts to Tax evasion and a penalty up to Rs 1 lakh can be imposed in such cases.

Budget 2015 has also made provision to submit Form 15G/15H for non-deduction of TDS for the amount paid on maturity of life insurance.

TDS Change Effective date:

All the above changes would be effective from June 1, 2015.