Any interest you earn from your fixed deposit is a taxable income and not tax free, under the Income Tax Act 1961. The taxes will be levied on the individual as per their income tax slabs. The taxes levied on fixed deposits will be on an individual basis since each individual pays different tax rates based on their income. The income tax slabs range from anywhere between 0% - 30%.

The Tax Deducted at Source or TDS on fixed deposits is liable to have a deduction of 10% by the bank. The amount needs to be paid at the end of the financial year if it exceeds Rs. 10, 000 as that is the limit for each bank. The branch pays the TDS only when the interest amount exceeds Rs. 10, 000 in a financial year, but there are cases where you would have received an interest amount higher than Rs. 10, 000 from various branches but the interest per branch will not be exceeding Rs. 10, 000. So basically the bank make the payment of tax on the amount you earn with keeping a fixed deposit in one of their branches and this will be reflected in your Income Tax filing.

Is there a way to save or reduce the tax on fixed deposits?

1. An individual can reduce the tax he/she pays from interest earned from fixed deposits. He/She can open fixed deposit in multiple names, like their parents, spouses, etc. and the interest will be calculated as per their income and tax slabs accordingly.
2. Let’s take an example of you wanting to open a fixed deposit for an amount of Rs. 1, 50, 000 meaning you would end up paying a TDS of almost Rs. 15, 000. But if you took a Rs. 50, 000 each fixed deposit in your name, your spouse’s name, and parent’s name you would end up paying a TDS of Rs. 5, 000 and the tax on and will end up with no TDS since a branch can not charge TDS for amount lesser than Rs. 10, 000.
3. Usage of the Form 15G/15H, submitting the form 15G/15H will ensure there is not TDS deducted since your income doesn’t go over the limit set for taxes payable.
4. Opening fixed deposits in different branches and different banks also help you avoid TDS. Let’s take an example of you wanting to open a fixed deposit for an amount of Rs. 1, 00, 000 meaning you would end up paying a TDS of almost Rs. 10, 000 if you open it in one bank. But if you took a Rs. 50, 000 each fixed deposit in your name in 2 different banks then you would not have TDS deducted since the interest earned would be Rs. 5000 each at 10% which means the bank won't charge you TDS.
5. You could also make sure you invest your money in a fixed deposit in such way that TDS can be avoided, Let’s take an example of you want to open a fixed deposit for a 1 year or 12 month period start the fixed deposit close to the financial year ending like in August, September, October, etc. This will end up splitting the tax between 2 financial years and you can again avoid TDS.

Will TDS still be charged on tax-saving fixed deposit as well?

The answer is, yes! You will be charged TDS. The rules for charging tax are the same for all fixed deposits. The only difference between fixed deposits and tax-saving fixed deposits are that the amount saved in the tax-saving fixed deposits is exempt from tax under the section 80C.