Is tax on interest on saving bank deposit auto deducted if interest exceeds 40K? Then does this means i don't need to declare this in ITR? I saw this note in my interest statement from SBI bank. AS PER CURRENT REGULATIONS W.E.F 1st APRIl 2019 INTEREST EARNED BY THE CUSTOMER IS DEDUCTED WHEN THE TOTAL INTEREST EARNED EXCEEDS THRESHOLD LIMIT OF RS 40,000 IN A FINANCIAL YEAR.

Ans: Dear Mr. Suryanarayana,

I apologize for not having the details of the earlier question asked by Mr. Ranjith. However, I can provide some general insights into the matter of premature closure of Fixed Deposits (FDs) and the calculation of interest income:

Scenarios for Premature FD Closure
Penalty-Free Premature Withdrawal with Interest Rate Adjustment:

Some banks do not impose a penalty for premature closure but will recalculate the interest based on the rate applicable for the actual period the deposit was held.
For example, if you had a 3-year FD with an interest rate of 6% but you close it after 1 year, the bank will recalculate the interest at the 1-year FD rate, which might be 5%.
This adjustment generally leads to a lower interest income than initially expected because the shorter duration rates are usually lower.
Penalty Imposition:

Other banks may charge a penalty for premature withdrawal. This penalty is typically a percentage of the interest earned or a reduction in the applicable interest rate by a specified percentage.
For instance, if the bank imposes a 1% penalty on a 1-year FD rate of 5%, the effective rate becomes 4%, reducing your interest income.
Impact on Interest Income
Lower Interest Rates: When the bank recalculates interest based on the period the FD was actually held, it almost always results in lower interest income because shorter-term rates are generally lower than longer-term rates.
Penalties: Penalties directly reduce the interest income, either by deducting a percentage of the interest earned or by lowering the applicable interest rate.
Conclusion
In both scenarios, premature closure generally results in lesser interest income compared to holding the FD until maturity. The exact impact depends on whether the bank applies a recalculated rate for the shorter period or imposes a penalty. Both methods are designed to compensate the bank for the early withdrawal and typically reduce the overall interest earnings for the depositor.

If you have any specific cases or examples you'd like to discuss, please provide further details, and I'd be happy to offer more tailored insights.

Best regards,
K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: The income tax in India is paid on accrual or receipt basis whichever is earlier. In case of 1 and 2 you rightly pointed out that since they are received you will pay taxes. As far as FD is concerned, the interest is taxed on accrual basis every year on which TDS is deducted. Hence, every year you will need to show the respective interest in your income tax returns and at maturity only differential interest will be paid.

For eg. FD of INR 100 @10% is made for 3 years then year 1 on 10 rs you will be pay tax. In year 2 you will be tax on 11 rs and year 3 you will tax on 12 rs and upon maturity there will be no taxes since entire interest is paid in the respective years.

Hope I am able to articulate this properly.

Ans: Such transaction will be reported by Bank through statement of financial transaction to income tax.

There are various restrictions for cash receipt like an individual cannot receive a cash loan or deposit of Rs 20,000 or more from another person within a single day, individual can not receive an amount of Rs. 2 lakh or more in cash from Single Person in a Day, against Single Transaction and for a Single Event

Ans: There is concept of advance tax.

Please read about it from https://incometaxindia.gov.in/Documents/Tax-Calendar/Payment-of-Advance-Tax.htm#:~:text=What%20is%20Advance%20Tax%3F,during%20the%20financial%20year%20itself.