Bank FD with Overdraft Facility: Interest Income for Income Tax?

Ans: Dear Shekhar,

I understand your confusion. Let me clarify this for you.

The interest earned on Fixed Deposits (FDs) is fully taxable. It is added to your total income and taxed at the slab rates applicable to your total income. The bank deducts TDS (Tax Deducted at Source) on the interest earned if it exceeds ₹40,000 in a fiscal year (the limit is ₹50,000 for senior citizens).

Now, coming to your specific situation, the bank is following an accrual system where the interest is calculated and accounted for each year, even if it is not paid out. This is why the bank has shown the interest in your account, even though it has not been credited to your account.

The bank manager is correct in saying that the tax is to be paid in the year the interest is accrued, not when it is actually received. So, you will have to include this interest income while filing your tax return for the Financial Year 2022-23.

I hope this clears up your confusion.

Ans: You have done right thing by showing the proportionate income in the preceding financial year. Please show proportionate income for the current year as well. The credit of tds needs to be shown in the current year ITR in the Tds section appropriately by selecting proper assessment year.

Please take your CAs assistance as well on this.

Ans: 01. It is advisable to utilize the loan amount for the purpose it was taken.
02. You should declare Interest Income from MIS in your ITR, but you can't claim any deduction for interest paid on the invested amount.
Most welcome for any further clarifications. Thanks.