FD Encashment Taxed Twice? Know Your ₹11L Defence

A tax tribunal ruled that when you break a fixed deposit, that money is NOT new income. The taxman cannot treat FD encashment as a fresh bank deposit and tax it again. Know your rights before filing.

Here's what happened: ITAT Hyderabad deleted a ₹11.65 lakh tax addition where the Assessing Officer mistakenly treated FD encashment proceeds as a new, unexplained bank deposit.. The tribunal held that funds from closing an existing fixed deposit cannot be counted as fresh income — the money was already on record with the bank.. This ruling reinforces that double-counting the same funds during bank account scrutiny is legally impermissible under the Income Tax Act..

What you should do: Keep all FD receipts and bank-generated closure statements — they prove the credited amount is a return of your own principal, not new income.. Check your Form 26AS and Annual Information Statement (AIS) after breaking any FD; flag any FD encashment entry that appears misclassified as an unexplained deposit.. If you receive a scrutiny notice citing a large bank credit, immediately match it against FD closure dates and submit a written explanation with documentary proof before the deadline..

Your bank's FD closure advice slip shows both the original deposit date and the maturity/premature closure credit — attach this single document to any tax response and the double-addition argument collapses instantly.