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Premature Closure of Fixed Deposit: Why TDS Deduction?

Ramalingam

Ramalingam Kalirajan  |8365 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Rupinder Question by Rupinder on Feb 06, 2025Hindi
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I renewed a FD with ICICI bank on 4.2.25, due on 1.3.26. I wanted premature closing the FD on 6.2.25. The FD was with the bank for 2days only and the bank is not paying any interest on it (also there is no penalty). The bank has told me that TDS will be deducted on the interest which was to be paid on maturity. The bank is not paying any interest so why deduction of TDS. Thanks.

Ans: The bank's approach seems incorrect. Since you are prematurely closing the FD within two days, and no interest is being paid, there should be no TDS deduction.

Why This Doesn't Make Sense:
TDS is deducted on interest earned, not on notional interest.
If the bank has not credited any interest to your account, there is no income to deduct TDS from.
Banks usually deduct TDS at the time of credit or payment of interest, not based on future projections.
What You Can Do:
Ask for Written Clarification: Request the bank to provide a written explanation of why they are deducting TDS despite not paying any interest.
Check Form 26AS Later: Ensure that no TDS is actually reflected in your Form 26AS. If deducted, it can be claimed in your ITR.
Escalate to ICICI Grievance Redressal: If the bank insists on deduction, escalate the matter through ICICI’s grievance process.
Approach Banking Ombudsman: If unresolved, file a complaint with the RBI Ombudsman for unfair TDS deduction.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I have submitted my Form 15 to my bank in April 2023. My income falls under the non-taxable category against interest received from bank FDs. Bank has not deducted any TDS up to September 2023 but from October 2023 they have started deducting TDS on FD interest earned by me saying that interest earned on my FDs have crossed the limit of Rs 5 lakh. Is the bank right in deducting tax citing this reason? Please enlighten me.
Ans: No, the bank is likely not right in this case. Here's why:

• Form 15G validity: A valid Form 15G submitted before April 1, 2023 is applicable for the entire financial year 2023-24 (assessment year 2024-25). This means if your income falls under the non-taxable category, the bank shouldn't deduct TDS on your FD interest for the entire year.
• TDS exemption limit: The current exemption limit for TDS on FD interest is Rs 40,000 for individuals below 60 years old, and Rs 50,000 for senior citizens (above 60 years old). There's no limit of Rs 5 lakh for TDS deduction on FD interest.

Here's what you can do:

• Reach out to your bank: Inform them that you submitted a valid Form 15G and your income falls under the non-taxable category. You can clarify the exemption limit and point out the mistake.
• Request rectification: Ask the bank to rectify the error and reverse the TDS deducted on your FD interest from October 2023 onwards.
• Seek professional help: If the bank doesn't resolve the issue, consider seeking help from a tax consultant or financial advisor. They can guide you further on how to claim a refund for the deducted TDS.

Additional points to consider:

• Ensure you have a copy of the Form 15G submission acknowledgement for your records.
• Keep a record of any communication with the bank regarding the TDS deduction.

By following these steps, you should be able to resolve the issue with the bank and avoid unnecessary TDS deduction on your FD interest.

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I have submitted my Form 15 in April 2023 as my income is below taxable income against interest received on my bank FDs. Bank has not deducted any TDS up to September 2023 but from October 2023 started deducting TDS on FD interest saying that interest on FDs has crossed the limit of 5 lakh. So as per IT rules should TDS be deducted?
Ans: You're right. Based on IT rules, TDS on FD interest might not have been applicable in your case. Here's a breakdown:

• TDS on FD Interest: There's no TDS deduction if the total interest earned from all your FDs with a bank is less than Rs 40,000 in a financial year. This limit is Rs 50,000 for senior citizens (aged 60 years and above).
• Form 15G/15H: By submitting Form 15G (for individuals below 60) or 15H (for senior citizens) in April 2023, you declared your income to be below the taxable limit. This should have exempted TDS on FD interest for the entire financial year (April 2023 - March 2024).

Possible Reasons for TDS Deduction:

• Crossed Interest Limit Misunderstanding: The bank might have mistakenly considered the total interest earned across all your FDs for the entire financial year (April 2023 - March 2024) and deducted TDS once it exceeded Rs 40,000 (or Rs 50,000 for senior citizens) from October 2023 onwards.
• Form 15 Not Processed: There's a chance your Form 15G/15H wasn't processed correctly by the bank.

Resolving the Issue:

• Contact the Bank: Reach out to your bank's customer care or branch manager and explain the situation. Mention you submitted Form 15G/15H and your income is below the taxable limit.
• Provide Documents: If needed, share a copy of your Form 15G/15H submission proof.

The bank should investigate and potentially reverse the deducted TDS.

Additional Notes:

• It's good practice to keep a copy of any forms submitted for future reference.
• If you still face issues, consider seeking guidance from a tax consultant.

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