Tax deduction on fixed deposits

There is the presence of tax deducted at source (TDS) as far as fixed deposits are concerned. When income earned in a year crosses a certain figure, there will be a tax deducted at source and the net amount will be received by the investor. There are different limits when it comes to different entities that have received the fixed deposit. In case of a bank, there will be a tax deduction only when the interest crosses Rs 10,000 in a year. In case of other financial institutions the limit is still Rs 5,000, so the tax deduction in housing finance institutions accepting deposits will take place after Rs 5,000 of income in a year is crossed.

When it comes to the question of showing the income for tax purpose the net income that is actually received by the investor has to be grossed up. For example, if there is a interest receipt of Rs 18,000 after a deduction of Rs 2,000 as TDS then in the income side the investor will show Rs 20,000 as income and in the tax paid side there will be a reduction of Rs 2,000 from the total tax to be paid and the net amount will be the figure that still has to be paid.