Bank FD for children and Tax calculation: Since the fixed deposit is being made in the name of your minor son, the income earned from the FD during his minor years will be clubbed with your income till he attains majority. But if you are following cash basis for interest income then the interest will be added to your child’s income at the time of maturity of the fixed deposit when he becomes an adult.
New Delhi: If you are planning to make a fixed deposit to meet your child’s better future and related needs. But confused about whether the interest earned every year on FD will be taxed? Since the interest on FD is available after the entire tenure. If you want, you can take a certificate from the bank every year. Income options need to be evaluated on various grounds to reduce the tax liability.
A taxpayer has the option to present his income in two ways, either on cash basis or on two other basis, viz., profit from business and profession and profit from other mode. Tax deduction on bank deposits is generally allowed on income from other sources.
Have to adopt these options
Since the fixed deposit is being made in the name of your minor son, the income earned from the FD during his minor son will be clubbed with your income till he attains majority. But if you are following cash basis for interest income then the interest will be added to your child’s income at the time of maturity of the fixed deposit when he becomes an adult. Keep in mind that the method adopted once has to be followed continuously year after year.
To ensure that the interest for the entire years is taxable in the hands of your child at the time of maturity. For this, the original tenure of the FD should be till he attains majority. If the tenure of the FD is less than that and the fixed deposit gets renewed during the tenure of your son’s minor, then the interest on such FD should be added to your income as the interest is deemed to have been received by you. Hence, you need to evaluate the income options on different basis to reduce the tax liability.
Explain that the earnings from FD are added to your total income every year in the income tax return. If the bank does not deduct TDS on FD interest, then the interest earned is added to your total earnings and tax is calculated accordingly. Always keep in mind that every year the interest earned should be shown in the ITR and not wait for the maturity of the FD.
