5 min read
Updated on Sep 23, 2022
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.
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.
TDS on fixed deposit may go according to the below-mentioned ways.
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.
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.
The rule is more flexible for these people. The threshold limit is Rs. 50000 for senior people.
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.
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.
According to section 195, all NRIs should pay TDS at the rate of 30% along with surcharges on the interest rate against their FDs
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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