New Delhi, April 28 -- The Income Tax Department has recently issued a clarification on how tax deducted at source (TDS) will apply to interest earned from banks. Instead, clearing doubts, it has created more confusion. Many investors are now wondering whether higher TDS will be deducted and how their favourite fixed-income investment-Fixed Deposits (FDs)-will be taxed under the new rules.

Under the provisions of Section 194A of the Income-tax Act, 1961, tax is required to be deducted at source on interest other than interest on securities. However, in terms of provisions of section 194A(3), banking companies are not required to deduct tax where such interest does not exceed the prescribed threshold (Rs. 50,000/Rs. 1,00,000, as applicabl...