TDS, known as Tax Deducted at Source, is the tax that is deducted from the interest earned on FDs, if they fall in the taxable category. FDs may remain to be one among the most safe and popular investment options among traditional investors and senior citizens but not many people still know about the tax aspect when it comes to term deposits. Whether a customer is investing in a fixed deposit at a bank or NBFC, TDS will be applicable in both cases. It is very important for those who have an FD and those who plan to invest in one, to know the various rules and regulations when it comes to TDS. The interest gained from such deposit accounts tend to be added to the total income and tax will be charged as per applicable rates. This income will be shown under the ‘Income from Other Sources’ section in an Income Tax Return (ITR) sheet.
Questions such as what is TDS?, how is TDS on FD calculated?, or how to avoid TDS?, are some of the most common questions that people ask when it comes to TDS on fixed deposits. Read on further, to understand more about all aspects about TDS on FDs.
Given below are the rules and regulations as far as TDS on FDs are concerned:
To understand more about the TDS computation procedure, it is best to take a look at an example.
Lets say Prashanth holds 2 FDs - both for Rs.1 lakh. If he earns interest at the rate of 10.00% p.a for 4 years, the interest income in 1 year will be Rs.20,000 from both the term deposits. (Rs.10,000 from each FD). In such a case, TDS will be charged at the rate of 10% on the total interest income. Therefore, 10% of Rs.20,000, which is Rs.2000.
1.What is TDS?
Tax Deducted at Source or TDS is type of tax that is collected by the Income Tax Department of the government of India. Bodies that make payments to individuals are responsible to deduct a certain percentage and then make the payment.
2. What happens if I do not pay TDS?
TDS is not something that you will have to pay as far as FDs are concerned. It will be deducted from the interest income that is earned automatically by the bank or financial institution, where you are putting your money.
3. Will I be issued a TDS certificate?
Yes. All banks will send the depositor a detailed TDS certificate that specifically outlines the amount of deduction and the rate of deductions that are made.
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.
6. When is TDS deducted?
It is usually deducted at the end of a quarter or before paying the depositor. This system may vary from bank to bank.
7. Will a minor or a non-working spouse be subject to tax on a fixed deposit?
Yes.
8. Is it mandatory to declare interest income?
If interest income is not declared then there will be a discrepancy in your tax papers because the bank/NBFC will have already reflected the TDS deductions through your PAN.
9. Why is TDS deducted by banks?
It is mandatory as per prevailing tax rules for banks to deduct TDS before making a payment to depositors.
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Many a times, Fixed Deposit (FD) holders wonder why their bank has made a cut on TDS (Tax Deducted at Source), on their FDs even if it was not applicable.
Customers who have FD accounts have been regularly facing this problem. To counter this, there have been several measures that have been put into place. This includes remittance and compilation of TDS at the head office level instead of the bank level and fixing cases where TDS has been deducted wrongly for customers who have submitted the relevant documents.
TDS will be deducted on all FDs if the interest earned on the same for a financial year is more than Rs.10,000. Banks can deduct 10% on the interest earned. The rate of deduction will double, adding up to 20%, if the customer has not furnished PAN details with the bank where he/she holds an FD.
7 November 2017
Chandigarh: Deductors are ‘overlooking’ the TDS on the interest income on fixed deposits, YK Singh, Income Tax Commissioner (TDS-1) of Chandigarh said at a recent meet of the heads of the North Zone. A survey of a few bank branches revealed the practice, Singh said at the meet organised by the Department of Income Tax in association with the PHD Chamber of Commerce and Industry.
Singh said his department aims to have a healthy relationship with banks for conducting various functions including tax deduction at source on fixed deposits. Singh asked banks to deduct tax if depositors submit Form 15G (interest is above the exemption limit).
11 March 2016
