Your Taxes

I deposited ₹50,000 in a tax-saving deposit of IDBI Bank in January 2014. After five years, the maturity value will be around ₹1 lakh. I have two queries: Will the bank deduct the tax from the maturity amount? Will the received amount be added to my salary for that year?

- Prasun Pallav

As per the provisions of the Income-tax Act, 1961, the bank is required to deduct tax at 10 per cent from your interest income on fixed deposits earned in a financial year, in case such interest income exceeds ₹10,000 per year per bank branch. The principal amount is not taxable at the time of maturity. Only the interest portion is taxable in your hands under the head ‘Income from Other Sources’ either on cash or accrual basis.

Technically the credit of the yearly tax deducted by the bank shall be given for the assessment year for which such income is assessable. However, considering the recent online credit mechanism, your Form 26AS may not match with the TDS claimed in the tax return if you follow cash basis system of accounting. Hence, it is advisable to adopt accrual basis of accounting wherein the income offered to tax and the TDS credit claim matches with your Form 26AS.

An employee working in a company quits the job after three years and withdraws his EPF amount. Are both the employee and the employer’s contributions taxable?

- Prabhakar Kamath

Withdrawal from Recognised Provident Fund (RPF) triggers tax implications if the same is withdrawn without rendering continuous services of five years with the employer. On change in employment in the past, if the accumulated balance with an RPF with the old employer has been transferred to the RPF account of the current employer, then the period of previous employment is also included as part of continuous service.

In your case, since you have not rendered continuous service for five years, the following components of the RPF accumulation shall be taxable:

Employer’s contribution to RPF plus interest thereon will be taxed as ‘salary’;

Interest on your own contribution shall be taxed as ‘income from other sources’;

Please note that employee’s contribution to RPF, which has already been offered to tax, would not again be taxed at the time of withdrawal. However, any amount of deduction claimed under section 80C on contribution to the RPF shall be reversed at the time of such withdrawal.

The writer is a practising chartered accountant. Send your queries to >taxtalk@thehindu.co.in

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