• TDS on Fixed Deposits (FDs)

    Published on September 21 2018

    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.

    What is TDS

    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.

    TDS on Fixed Deposits

    TDS for Indian Residents

    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.

    TDS for NRIs

    For interest earned on fixed deposits, NRIs have to pay TDS of 30% plus applicable surcharge and taxes.

    TDS Waiver for Indian Residents

    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.

    TDS Rate in the Absence of PAN Details

    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

    How to save TDS on FD

    There are many ways to save TDS on your fixed deposit such as:

    • If your income is lower than the lowest income tax bracket, submit Form 15G or Form 15H
    • If you are in the non-income tax bracket, file your income tax returns and claim TDS on the FD interest as a refund

    Exemption Limit for TDS

    There are different exemption limits for different types of TDS. They are as given below:

    • No TDS if total taxable income is less than Rs.2.5 lakh
    • Company FDs: TDS deduction limit is Rs.5,000 in a financial year and for senior citizens

    How to Pay TDS

    TDS can be paid to the Central Government in the following ways:

    • At authorized bank branches by submitting Challan 281
    • For corporate assesses and assesses other than company, for whom Section 44AB of the Income Tax Act, 1961, is applicable, e-payment is mandatory

    Rules of TDS on FDs

    Given below are the major rules about TDS on FDs that it is important to know about:

    • The bank will estimate your interest income on FDs for the year from all the FD accounts held with the bank
    • The fixed deposit interest income is calculated as per your income tax slab rates
    • Those in the highest income tax slab will have to pay tax in addition to the TDS
    • Form 15G is the form that has to be submitted by the general public for claiming TDS exemption if income is below the taxable limit
    • Form 15H is the form that senior citizens have to submit for TDS exemption
    • When the aggregate interest from all fixed deposits exceeds Rs.40,000 in a financial year, TDS is taken by banks and the post office

    How TDS calculation is done for an FD

    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.

    Tips to Save on TDS on FDs

    • Furnish your PAN details: Those who have not furnished their PAN card details will have to pay 20% TDS if they are Resident Indians and 30% if they are Non-Resident Indians, so it is important to ensure that your PAN details are submitted to your bank
    • If interest income does not exceed Rs.40,000 on fixed deposits, a declaration form 15G and 15H form can be submitted for TDS exemption.

    Frequently Asked Questions (FAQs)

    1. Where is TDS form available?

      TDS form or challan is available for download at the official website of the Income Tax Department of India.

    2. What happens if I forget to pay TDS?

      TDS is automatically deducted from your FD interest amount and paid to the government by the bank.

    3. Will I be issued a TDS certificate?

      Yes, you will get a TDS certificate from the bank that details the deduction amount.

    4. Is it possible to ask the government for a refund if tax is deducted by mistake?

      Yes, this can be done by filing income tax returns.

    5. Is TDS applicable for those who are above 60 years?

      Yes, senior citizens too have to pay TDS.

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