Fixed deposits are one of the most popular and trusted savings and investment options in India. Fixed Deposit not only keep your money safe but also give you a good rate of interest over a fixed tenure (that can vary from 7 days to 10 years). There are different interest payouts ranging from monthly to annually. Interest rates for senior citizens can be up to 0.50% more than for the general public. There is also tax savings when investing in Tax Saver FDs.
However, it is important to note that even on FDs, the interest earned is taxable. FDs have Tax Deducted at Source (TDS) if the interest amount exceeds a minimum threshold amount. It is important that everyone is aware of these rules in order to be tax-abiding citizens.
Tax Deducted at Source or TDS is type of tax that is collected from the source of income by the Income Tax Department of the Government of India. It is remitted to the Central Government. For FDs, the tax is deducted at source at the time that it is credited into your bank account and not at the time of the FD’s maturity. The deductor will issue a TDS certificate or Form 26A.
For interest earned by Indian Residents on fixed deposits in the financial year 2020-21, the TDS will be 7.5%. This is only if the interest exceeds Rs.5,000 during this financial year and is effective 14 May 2020. For company FDS, the TDS is 10%. This is only when PAN details are provided to the bank or financier. This is not applicable for those who have not submitted their PAN details.
For AY2019-20, the TDS is 10% if the interest amount exceeds Rs.10,000 for the whole of the financial year. The TDS deduction limit had been increased to Rs.40,000 annually for the general public and to Rs.50,000 annually for senior citizens under the 2019 Union Budget.
For interest earned on fixed deposits, NRIs have to pay TDS of 30% plus applicable surcharge and taxes.
Indian residents can apply for a waiver of TDS on interest earned on fixed deposits. To avail this waiver, Form 15G or Form 15H (as per your age) should be submitted at the start of the financial year to your financier. These forms must include a self-declaration that the tax on your estimated total income during the financial year is zero. Since your taxable income is nil, no TDS will be charged on the interest earned on your FD. You can also claim a refund of any TDS deducted if your total income falls below the minimum income tax slab.
If you have not submitted your PAN details, the rate of TDS will be the following:
Indian Residents: 20% TDS
Non-Resident Indians: 30% plus applicable surcharge and cess
There are many ways to save TDS on your fixed deposit such as:
There are different exemption limits for different types of TDS. They are as given below:
TDS can be paid to the Central Government in the following ways:
Given below are the major rules about TDS on FDs that it is important to know about:
To understand how TDS is calculated, let’s take a look at the following example:
If Sumathi has two fixed deposits of Rs.1 lakh each and earns an interest of 10% p.a. for 4 years, the interest income in one year is Rs.20,000 from both the FDs put together. In such cases, TDS will be charged at 10% on the total interest income. So the TDS that has to be paid by Sumathi will be Rs.2,000.
TDS form or challan is available for download at the official website of the Income Tax Department of India.
TDS is automatically deducted from your FD interest amount and paid to the government by the bank.
Yes, you will get a TDS certificate from the bank that details the deduction amount.
Yes, this can be done by filing income tax returns.
Yes, senior citizens too have to pay TDS.
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