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Here's what you must know to stay clear of taxman
September, 05th 2017

The tax department has increased scrutiny of fixed deposits. According to news reports, individuals who earn from fixed deposits but do not pay tax or file their tax returns are under the taxman’s radar. And for good reason.

When it comes to the taxability of interest income, there are a lot of misconceptions in the minds of taxpayers. Our cover story this week looks at where taxpayers may be going wrong and what they should do to get on the right side of the law.

The biggest misconception among investors is that their fixed deposits will remain hidden from the prying eyes of the taxman. The TDS is a dead giveaway for such investors. If the income from fixed or recurring deposits exceed Rs 10,000 in a financial year, the bank will deduct TDS.

This will then show up in the taxpayer’s Form 26AS, along with the interest income earned by the individual during the financial year. Another misconception is that no tax is payable if the bank has deducted TDS.

But TDS is only 10% of the income. If the investor falls in a higher tax slab, his liability would be higher because interest is fully taxable as income.

Don’t try to avoid TDS
Some investors try to avoid TDS by breaking up their investments into smaller deposits across several banks. If you invest Rs 1 lakh in a fixed deposit that earns 7%, the annual interest will not breach the Rs 10,000 limit even in the fifth year.

But experts warn against such attempts to avoid TDS and evade tax. “It is compulsory to submit your PAN when you invest in a fixed
deposit,” says Archit Gupta, CEO and Founder of “There is no way to keep such investments hidden for long.”

“It is compulsory to submit your PAN when you invest in an FD. You can’t hide these deposits even if you invest across multiple banks.” Archit Gupta, CEO,

Others try to hoodwink the tax authorities by submitting Form 15G or 15H so that their bank does not deduct TDS. These forms are declarations that the individual’s income for the year is below the taxable limit and therefore no TDS should be deducted from the interest.

However, misuse of these forms can invite the wrath of the tax department. “A false declaration not only attracts penalty but also prosecution. The taxpayer can be sentenced to jail for terms ranging from three months to two years,” says Sudhir Kaushik, Co-founder and CFO,

You need to meet two basic conditions to file form 15G. One, your taxable income for the year should not exceed the basic exemption of Rs 2.5 lakh. Two, the total interest received during the financial year should not exceed the basic exemption slab of Rs 2.5 lakh. Mind you, the total interest income should include interest from other sources, including PPF and NSCs.

Form 15H, which is for senior taxpayers above 60, imposes only the first condition. The final tax on the total annual income should be nil. So, senior citizens whose taxable income is below the Rs 3 lakh limit are eligible to file Form 15H. For very senior citizens above 80, this limit is Rs 5 lakh.

Misusing Form 15G and 15H
Don’t think you can get away by submitting the Form 15G or 15H. Though banks don’t question the investor when he files these self-declarations, the matter doesn’t end there. “Banks are supposed to mention the names and PAN details of such investors in their TDS returns,” says Mumbai based chartered accountant Shubham Agrawal.

This information then makes its way to the Form 26AS of the individual. One can only imagine what will happen to an investor whose Form 26AS indicates submission of Form 15G or 15H at multiple banks and an income that exceeds the basic exemption limit.

Tax filing portal Taxspanner scrutinised the returns filed by assessees and found that almost 90% had not reported any interest income. That’s odd, given that all taxpayers have bank accounts and interest accrues on the balance. This interest is tax-free up to Rs 10,000 a year under Section 80TTA. Any amount above that limit is taxed as income.

However, since there is no tax deduction at source (TDS) on savings bank interest, this income is rarely reported. In future, as banks start
sharing data, TDS could be applied to deposits made across other banks as well.

“The mechanism to track deposits across other banks already exists. If banks share the names and PANs of fixed deposit investors, lakhs of individuals could come in the tax net,” says M.K. Agrawal, Senior Partner, Mahesh K Agarwal & Co. etc.

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