Tax Deducted at Source (TDS) on Fixed Deposits (FD): A Detailed Guide

TDS on Fixed Deposits

FDs (Fixed deposits) are excellent ways by which you can strengthen your wealth. FDs also offer you an additional source of income by paying you some good interest rates. But, you may receive this interest in various ways (from monthly to quarterly to yearly). Senior populations may receive up to 0.50 per cent more interest rate than others. If your interest amount surpasses the threshold margin, then TDS on fixed deposit will be applicable. Your financier will apply TDS on interest on fixed deposit according to the Income Tax Act, 1961.In this article, we are going to elaborate on how TDS on fixed deposit works so that customers can prudently invest in these fixed deposits.

What is TDS?

The full form of TDS is Tax Deducted at Source. This special type of tax is designed to withdraw tax from your income sources as per the Indian Income Tax Act, 1961.

The tax deducted from a person’s account goes straight to the Central Government’s account. Before crediting your income amount, this tax is calculated and deducted. This step is imperative to minimize income tax fraud.

How TDS on Fixed Deposit Calculated?

TDS on fixed deposit may go according to the below-mentioned ways.

TDS applicable for the interest amount of an FD

The interest that you will receive against your FDs will be included in your total income. So, your tax amount will be calculated according to your income tax slab rates. You must remember that most Indian banks subtract the tax before crediting your interest amount, not when your fixed deposit amount matures.

If you have made a fixed deposit for four years from today, then the TDS will be applicable at the end of every fiscal year.

Taxable interest income against your fixed deposits

Now, suppose, you receive an interest amount above 40,000 in a year, then as per the new tax law, you need to pay TDS against your fixed deposit. This rule is valid for everyone except for senior citizens above 60.

TDS on fixed deposit for senior citizens

The rule is more flexible for these people. The threshold limit is Rs. 50000 for senior people.

How to calculate TDS against an FD

The TDS amount against fixed deposits is not the same for all. This amount is calculated based on the income tax slab of an individual. Let’s understand this with the below-mentioned example.

Mr. Subhasish made two FDs (one lakh each) to secure his future. He gets an interest of 10% against all FDs for 3 years. So, his total interest amount per year is Rs. 40,000(Rs. 20,000+ Rs. 20,000). For 3 years, Subhasish’s total interest could be Rs. 40000X3=Rs.120000.

Subhasish TDS will be 10% of Rs. 40000= Rs.4000.

Alos Read: How TDS is Calculated and Deducted on Salary?

Various TDS rates for different people

For Indian Residents 

As per the financial budget for 2020-2021, banks will automatically subtract a TDS at a 10% rate per year on the interest of an FD.

For NRIs

According to section 195, all NRIs should pay TDS at the rate of 30% along with surcharges on the interest rate against their FDs

Points to remember regarding the rules and regulations of TDS on FD

• After deducting TDS, a tax deductor should provide the TDS certificate or Form 26A to the taxpayers
•  Without authentic PAN information, your TDS will be 20%
•  If your interest amount surpasses Rs. 5 lakh, then you will be charged with an additional 10% rate to TDS
• FD interest over 10 lakh will be eligible for an extra 20% tax deduction apart from the TDS
• If your total income (including salary plus FD interest) belongs to the category of the exclusion limit, your bank can’t deduct any tax or TDS on FD

How do you save TDS against FDs and initiate a refund?

• Form 26AS provides you with all your details on your tax expenses. Here, you can check your TDS deductions from your FD interest.
• In case of discrepancy (if you paid an extra amount of TDS to the government), by submitting your income tax returns, you can initiate a refund. To file your Income Tax Return, you need to report the gross interest amount under the head “Income from Other Sources”
•  If you belong to the category of the no-income-tax slab, and TDS is applied on your FD interest, then, by filing the income tax return, you may ask for a refund.
• You need to submit the 15G at the beginning of a fiscal year where you need to mention that your total earned amount is below Rs. 2.5 lakh annually. In this case, you don’t need to pay TDS on FD interest.
•  The purpose of form 15H is also the same but it applies only to senior citizens. If an elderly national earns less than Rs. 3 lakh per year, then by submitting this form he/she may avoid TDS.

Areas where TDS is not applicable

• If your income level is below Rs. 2.5 lakh per year, you don’t need to pay any TDS
• If a senior citizen (above 60 years) earns below Rs. 3 lakh per annum, the person doesn’t need to pay any TDS.
• For a typical fiscal year, not more than Rs. 5000 will be subtracted from all the residents of the country

How do you minimize TDS against your fixed deposits?

• Don’t create an FD in any bank instead you can make an FD at a post office. The TDS amount is much lesser in a post office as compared to banks. Though the post office pays you a lesser rate for FDs, you can save a lot of money on taxes.
• Make FDs on various banks or financial institutions. This way, you can save some taxes.
• Try to open an FD account for the dependent (non-earning) family members

To make a robust future, check income tax rules for TDS on fixed deposits and how your TDS is subtracted every year. Never ignore this else you may need to pay more TDS for all your accrued interests against your FDs.

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