TDS on Fixed Deposits (FDs)

Fixed deposits are one of the most popular and reliable ways to save and invest in India. Fixed Deposits not only keep your money safe, but they also pay a good interest rate over a set period of time (that can vary from 7 days to 10 years). Interest is paid in a variety of ways, from monthly to annually. Senior citizens can pay up to 0.50 percent more in interest than the general population. When you invest in Tax Saver FDs, you can also save money on taxes.

It's worth noting, though, that the interest generated on FDs is taxed. If the interest amount on an FD reaches a certain threshold, TDS is deducted at the source. To be tax-conscious citizens, it is critical that everyone is aware of these requirements.

TDS (Tax Deducted at Source) is a sort of tax collected by the Income Tax Department of the Government of India from the source of income. It's handed up to the federal government. For FDs, the tax is taken at source when the money is deposited into your bank account, rather than when the FD matures. A TDS certificate or Form 26A will be issued by the deductor.

TDS Rates Applicable for Different Customers

The various TDS rates applicable for different customers are mentioned below:

1. For Indian Residents: In the financial year 2021-22, the TDS on interest earned by Indian residents on fixed deposits would be 10%.

2. For NRIs: NRIs must pay TDS of 30% plus relevant surcharges and taxes on interest generated on fixed deposits.

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.

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.

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

FAQs Related to TDS on FD

1. What is the TDS rate on FD interest?

   The current TDS rate on FD interest is 10%.

2. What is the exemption limit for TDS?

   The exemption limit for TDS is Rs.2,50,000

3. Is interest on FD exempt from tax?

   No, interest rate on FD is not exempted from tax.

4. When do banks or post office deduct tax or TDS?

   When the total interest income on all fixed deposits reaches Rs 40,000 in a financial year, then the banks or post offices deduct tax or TDS.

5. What is the tax deduction on FD interest for senior citizens?

   Senior citizens can apply for tax deductions of up to Rs.50,000 per annum on FD interest rates.