Journal Entry and Ledger Posting for Interest on Bank Fixed Deposits when TDS is applicable

In certain cases Interest earned on Fixed Deposit Accounts are enforced by the Income Tax Act and TDS is applicable on Interest paid/earned.

Bank pays the Interest amount after deducting TDS amount from Interest earned by the Depositor/Customer/Account Holder.

TDS is applicable when Interest earned/paid reaches the maximum exemption limit.

Not let's discuss about Journal Entry and Ledger Posting for Interest on Fixed Deposits earned and eligible for deduction of TDS.

For the above transaction, following Ledger Accounts are affected in the Books of Depositor/Customer/Account Holder.

Debit Ledgers are :

• Fixed Deposit Account and,

• TDS Account

Credit Ledger is :

• Interest on Fixed Deposit Account

Journal Entry

Ledger Posting

In Fixed Deposit Ledger Account

In TDS Ledger Account.

In Interest on Fixed Deposit Ledger Account.

Example :

M/s.Aman Jewellery opened a Fixed Deposit Account on dated 01/10/2020 with Bank of India for ₹3,00,000/- @ 6% Interest p.a. Date of Maturity dt.30/09/2023. 

Interest earned from dt.01/04/2021 to dt.31/03/2022 is ₹18,000/-, Date of Credit is dt.31/03/2022  and deducted TDS 10% on Interest earned i.e TDS for ₹1,800/-.

Pass necessary Journal Entry and post them into their respective Ledger Account for Interest earned.

For the above transaction,

Debit Ledger is :

• FD with Bank of India A/c

• TDS A/c
  

Credit Ledger is :

• Interest on FD with BOI A/c

Journal Entry

Ledger Posting

In Fixed Deposit with Bank of India Ledger Account.

 In TDS Ledger Account.

In Interest on Fixed Deposit with Bank of India Ledger Account.