Interest on a fixed deposit arrives in the bank net of tax. The statement shows the net figure, and nothing on it mentions the deduction.
Under section 194A a bank deducts tax on interest other than interest on securities once the amount crosses the annual threshold. What it reports to the department is the gross interest and the tax deducted. What it puts in the account is the remainder.
So the books record one number and the department holds another, and the gap is not an error by either party. It only becomes a problem at assessment, when the return shows interest income lower than the AIS says it should be.
The entry has three legs, not two
Booking the statement gives you two: bank debited, interest income credited, both at the net figure.
The correct entry has three. The bank is debited with what actually arrived. A TDS receivable asset is debited with the tax the bank deducted. Interest income is credited with the gross, which is the sum of the two.
The TDS receivable is a real asset. It is money already paid to the government on the client's behalf, and it will be set against the year's tax liability or refunded. Recording only the net figure does not just understate income by the deducted amount, it writes off an asset the client is entitled to, and does it silently.
Where the gross figure actually comes from
Not from the statement, which is the difficulty.
The reliable sources are the bank's interest certificate, issued annually, and Form 26AS or the AIS, which show gross interest and tax deducted per deductor. Either gives you the pair of numbers the entry needs.
This makes bank interest one of the few line items on a statement that cannot be booked correctly from the statement alone. Any import that reads the credit and posts it is producing a defensible-looking entry that is wrong by the deducted amount, and the error compounds quarterly across every deposit the client holds.
The practical approach is to import the net credit, flag it, and complete it from the certificate at year end rather than pretending the statement was sufficient.
Savings interest, FD interest, and the thresholds
The two behave differently and get conflated.
Interest on a savings account is credited quarterly, is not subject to TDS under 194A, and for individuals attracts a deduction under section 80TTA up to ten thousand rupees, or 80TTB for senior citizens. Interest on a fixed deposit is subject to TDS once it crosses the threshold for the year with that bank.
Because the threshold is per bank and not per deposit, a client with several deposits at one branch can cross it without any single deposit looking large. And a client who filed Form 15G or 15H has had no tax deducted at all, which means the gross and net are the same and the income is still fully taxable. That last case catches people out, because the absence of a deduction reads as an absence of income to report.
The mismatch that surfaces a year later
AIS reporting has made this a routine notice rather than an occasional one.
The department has the gross figure from the bank before the return is filed. A return reporting the net figure shows a shortfall in interest income, and the system flags it without anyone reading the file. The response is usually simple, but it is a response, and it happens after the accounts are closed.
The check that prevents it takes five minutes per client: total the interest credits in the bank ledger for the year, compare against the AIS, and expect the AIS to be higher by exactly the TDS. If the difference is anything other than the deducted tax, one of the two is wrong and it is worth knowing which before filing rather than after.
Reconciling what the books say against an outside record is the same discipline applied to the bank balance itself.
Conclusion
Bank interest is the mirror image of a TDS deduction on a payment. There, the bank line was smaller than the expense. Here, it is smaller than the income.
In both cases the statement is accurate about the cash and silent about the transaction, and in both cases posting the cash figure creates an error that no reconciliation will catch, because the cash agrees. The gross figure comes from the certificate and the AIS, and the entry is not finished until it does.
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