Tax laws for TDS on Fixed Deposit and way to defer tax until end of fiscal year.

Fixed deposit is one of the many alternatives and safe way to earn passive income. You can earn higher interest rate than regular saving account. Interest is also considered a source of income and so governed by tax laws of India.

When do the banks deduct TDS on a fixed deposit?
If the total interest earned on all your fixed deposits in a bank is greater than Rs. 10,000 in a financial year, you are liable for TDS and the banks will deduct the income tax at source. The tax liability for the purpose of TDS is determined at the branch level. Even if a fixed deposit is in the name of a minor it will attract TDS and in this case the credit for TDS can be claimed by a person managing the minor's income. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year.
The rate at which TDS is deducted varies according to the category of account holders.

TDS rates for a fixed deposit held by resident individual and HUF
If the fixed deposit holder is a resident individual and HUF, for a payment of up to 10 lacs, TDS will be deducted at a rate of 10% in addition to it there is an education cess of 3% which takes the total deduction to 10.3%. For a fixed deposit of resident individual or HUF with payments equal to 10 lacs or more the TDS rate is 10%, in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 11.3%

How does change in FD portfolio affect on TDS?
Any change or enhancement in fixed deposit portfolio affects the TDS liability. If your changed portfolio earns a interest which falls under limit of income tax laws, you will be liable for TDS on your current FD portfolio. In case the interest on your current portfolio is not sufficient enough to cover the TDS, it will be deducted from the principal amount.

For any TDS deducted by the bank, it will issue a Form 16A which can be used to substantiate the facts, while filing the income tax returns.
Remember, that any exemptions claimed don't help you save tax, since in your final Income Tax Return you would end up paying the tax with possibly interest penalties.

What if I don't have my PAN registred with bank?
effective from 01/04/2010, Bank will deduct 20% of your interest on your FDs. so if you don't have PAN quckly apply for one and register it with bank so you can defer TDS until end of year.

So what you can do so Bank does not deduct TDS? Well divide your FDs in such a way that interest from FDs does not go more than Rs.10000. so distribute amount in 3-4 banks. But still you will have to show interest as part of income in when you file for income tax retun after end of fiscal year. so thsi way you can delay tax on interest from FD but can not exempt from it.

understanding signals from RBI credit policy

Every quarter, newspapers and business channels dedicates a lot of space to credit policies by RBI. There are 3 important ratios (CRR, repo rate, reverse repo rate) which are subject to change by RBI in credit policy meetings. These ratios are important to understand as this directly impacts other rates, like interest rate on homes and personal loans etc.

CRR (Cash reserve ratio):
This is the percentage of cash deposits that banks have to maintain with RBI. An increase in CRR means that banks have to park more money with the central bank. This sucks out the liquidity in the banking system. As a result, banks have lesser money with them to lend. This could lead to higher interest rate if there isn't enough liquidity in the system.

Repurchase or repo rate:
This is the rate of interest at which the RBI lends money to banks. In other words, it is the apex bank's lending rate to other banks. A cut in repo rate is good news for banks, as they can borrow more at low cost.
Since, RBI raises its lending rate for banks, the cost of funds for banks go up. Consequently, they lend at high rates as well.

Reverse repo rate:
This is the rate at which RBI borrows funds from banks, opposite of repo rate. In other words, this is RBI's borrowing rate. An increase in reverse repo rate is positive for banks because they earn higher returns by lending to RBI.
If RBI slashes its borrowing rate, banks lend at a lower rate. Also, deposit rates go down.

The change in policy rate (repo and reverse repo rates) has an indirect impact on consumers because the lending and borrowing rates of RBI impact the banks. But it is also a signal whether lending and borrowing rates will go up.

Statutory liquidity ratio (SLR):
This rate is another determinant of lending rates. Every bank has to keep an assured amount of funds in some form or the other (cash, gold, government bonds, etc) before lending to customers. This measure controls bank's credit expansion and can lead to higher interest rates.
The overall impact or hike or reduction in the CRR, reverse repo and repo, like this time, lead to a rise or fall in the interest rates, depending on the quantum.
For instance, the impact of a rise in all three this time is being interpreted as a moderate measure.