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Tax, Mutual Fund Expert - Answered on Jul 27, 2023

Asked on - Jul 09, 2023Hindi

My pension bank has shown interest earned Rs. 80000/-for the financial year 2022-23. But no such interest was credited to my account during this period. I asked the bank manager to correct it as i have to file income tax return for Financial Year 2022-23. But the bank manager said the amount is that will accrue on maturity of FDs made by me{ i.e. for ull period of FDs}. I said I will pay tax on it on maturity of FDs. But he said, it is to be paid this year ( starting of FD period) on total interest to be earned for the FD period, I am confused. Kindly help to know the correct position.
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.
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