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No TDS on FDs does not mean no Taxes! Your guide to Reporting Fixed Deposit Interest in ITR

Every year in the months of June and July, Indian taxpayers would be rushing to file their Income Tax Returns. A common mistake which many taxpayers do is not declaring the interest earned on Fixed Deposits. This is partly due to the belief that a sum of ₹10,000 or lesser is not taxable. Also, banks do not deduct TDS when they don't expect interest income to go beyond ₹10,000 in a financial year. However, that is not true. 
  1. Only interest up to ₹10,000 earned on SB (Savings Bank) account is exempt from income tax. The total amount earned needs to be mentioned in Section 80TTA. The exempt amount would be computed by the system / offline utility.
  2. Every rupee of interest earned on FD (Fixed Deposits) and RD / CD (Recurring / Cumulative Deposits) is taxable as per a person's income tax slab. All income earned through these instruments needs to be declared under the heading 'Income from Other Sources'. 

The Real Problem: Computing Interest Income

Now that we understand the importance of declaring the SB and FD interest, the real problem lies in computing them. The problem gets compounded when you have multiple Savings Accounts in different banks / branches or auto-sweep deposits. There are also cases where banks don't quote Savings Bank interest in the interest certificate. In order to compute the exact interest income, you can
  1. Obtain interest certificate from the bank website and match it against tax credit entries in Form 26AS. The Form 26AS may be retrieved by heading to TRACES website. You can directly view 26AS without registering in TRACES by navigating there from your bank's internet banking platform (taxes section) 
  2. However, for some banks, interest certificates are not available online or you might be living in a different city. You can visit them to request a certificate but you may have to visit again to collect it. In such cases, manual computations might be necessary and that's easier than multiple visits to the bank branch.

Manual Computation

All banks allow downloading statements in Excel format (as .xls or comma separated .csv files). With some data filtering or a manual examination, you will be able to find interest credits for both Savings and Fixed Deposits (when you have specified interest payment intervals as quarterly, half-yearly etc.). Typically interest credits happen on credits on 30 June, Sep, 31 Dec, March. You can then tabulate all your interest income from different banks in a spreadsheet and arrive the numbers. Reconciliation against Form 26AS is recommended.

How to File ITR?

Filing income tax return has never been as easy as it is now. Popular options available to the taxpayers to file IT Returns are

  1. E-Filing using the online form in the official e-filing website of Income Tax Department.  Only ITR-1 and 4S are available as online forms, for other forms one will have to use the Excel or Java utilities 
  2. User-friendly websites like ClearTax [Referral Link] which allow uploading Form-16 provided by the employer and take care of the majority of calculations. You just need to verify the numbers. The best part is self e-filing is 100% free at ClearTax! This approach is highly recommended if you are filing your returns for the first time or are using complex forms like ITR-2 which can be intimidating at first glance.  ClearTax and other similar websites also offer paid services like CA assisted filing. 
  3. File with the help of a Chartered Accountant

Points to Remember

In option 2, I have noted that ClearTax takes care of computations from the uploaded Form-16.  It is important to note that Form-16 provided by employers generally does not contain income earned from Savings / FD / RD interest. Therefore, 
  1. You will have to enter the details you computed manually in the appropriate fields. Same holds good for other filing modes too.
  2. Banks deduct TDS at a standard rate of 10% but you are obliged to pay taxes at your slab. ClearTax [Referral Link] or the IT E-Filing Website would be suggesting the pending amount and you need to follow the instructions to pay the amount via Challan 280.

After filing the ITR don't forget to E-Verify it. More about how to E-Verify.

Which ITR for whom? (AY 2016-17)

Best Practice for Future Use

A best practice here would be to keep a personal book of accounts. Do not start cumulative FDs. Only Quarterly/Monthly interest payable FDs, so that everything can be calculated from the SB statement via Asan Ideas for Wealth
Some more ideas on maximizing returns from the same conversation - 


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