TDS on Fixed Deposit (FD)

Introduction

In India, fixed deposits (FDs) are among the most popular investment options that provide guaranteed returns. However, the interest earned from FDs falls under the ambit of taxation as per the Income Tax Act of 1961. The tax deducted at source (TDS) on FD interest applies when the accrued earnings exceed a specified limit. Therefore, it is crucial to understand how TDS on fixed deposit works to avoid tax implications.

In this guide, we will explore the fundamentals of TDS on FD, how it is calculated, and ways to claim a TDS waiver.

What is TDS on Fixed Deposit?

TDS on fixed deposit refers to the tax deducted by the bank or financial institution on the interest earned from an FD. TDS is deducted only when the interest earnings exceed a certain threshold, making it taxable.

The government taxes the interest earned on an FD, regardless of whether you hold it with a bank, non-banking financial company (NBFC), or other financial institutions. It’s important to note that even tax-saving FDs are subject to TDS.

In the case of a joint FD, the bank deducts TDS based on the primary account holder’s PAN details, and it does not hold the secondary holder responsible for TDS deductions.

Who Deducts TDS on Fixed Deposit?

The bank or financial institution holding the FD deducts the TDS on the interest earned. Typically, it deducts the TDS amount automatically at the end of the financial year or upon maturity, depending on the interest payout frequency.

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TDS Rates on Fixed Deposit

The rate of TDS on FD interest depends on factors such as the account holder’s age, tax slab, and PAN submission status. Here’s a breakdown of TDS rates:

For Resident Indians: A TDS of 7.5% is applicable if the interest earned exceeds ₹5,000 in a financial year. This rate has been reduced from the earlier 10% due to the COVID-19 pandemic.
For Non-Resident Indians (NRIs): TDS is levied at 30% on FD interest, along with applicable surcharge and cess.
Without PAN Submission: If the FD account holder has not submitted their PAN details, the TDS rate increases to 20%.

Example of TDS Calculation on FD Interest

Let’s consider an example for a better understanding of how TDS on FD is calculated.

Assume Lisa has two FD accounts of ₹3 lakh each in a bank and an NBFC, both offering a 10% interest rate for four years. The total interest earned from both FDs each year is:

₹60,000 (from both accounts)
Total interest earned over four years: ₹60,000 x 4 = ₹2,40,000

Now, TDS on the annual interest would be calculated as follows:

TDS at 7.5% on ₹60,000 = ₹4,500 per year.

Online TDS Calculator:

Individuals can also use TDS calculators available online to simplify the calculation process and avoid manual errors.

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Exemption Limits for TDS Deduction on FD

The exemption limit for TDS on FD interest varies depending on the account holder’s age and income bracket. Here’s a breakdown of the exemption limits:

For Resident Individuals: Interest up to ₹40,000 is exempt from TDS.
For Senior Citizens (60+ years): Interest up to ₹50,000 is exempt from TDS.
For NRIs: No exemption limit applies, and TDS is deducted on the entire interest earned.

How to Avoid or Waive TDS on Fixed Deposit

There are ways to avoid or reduce the impact of TDS on FD interest:

1. Submit Form 15G/15H:

Individuals below 60 years can submit Form 15G, and senior citizens can submit Form 15H to the bank to declare that their total income is below the taxable limit. In such cases, the bank will not deduct TDS on FD interest.

2. Claim TDS Refund:

If your income is below the taxable limit and the payer deducted TDS, you can file for a TDS refund when you submit your income tax return.

How to Check TDS on FD

You can check the TDS on FD by following these steps:

Log in to your account on the bank’s website.
Navigate to the ‘TDS Certificate’ section.
Download Form 16A, which will contain the details of the TDS deducted.

Alternatively, TDS details can be checked through the TRACES website using your PAN details.

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How to Check the Status of FD TDS Deduction

To check the status of your TDS on FD:

Log in to your bank’s online portal.
Visit the ‘Tax Statement’ or ‘TDS Status’ section.
Enter your FD account details or PAN number to see if TDS has been deducted.

Conclusion

Fixed deposits offer a stable source of income, but understanding the tax implications of TDS on FD is crucial to managing your investments efficiently. Make sure to stay updated on the current TDS rates, and check whether your income qualifies for exemption. In cases where TDS has been deducted unnecessarily, you can claim a refund when filing your tax returns. By leveraging forms like 15G or 15H, you can also avoid unnecessary tax deductions and optimize your savings.

Frequently Asked Questions

Is TDS on FD mandatory for all account holders?

No, TDS is only applicable if the interest earned exceeds ₹40,000 for individuals (₹50,000 for senior citizens). If your total income is below the taxable limit, you can submit Form 15G or 15H to avoid TDS.

How can I avoid TDS on my FD?

You can avoid TDS by submitting Form 15G (for those below 60 years) or Form 15H (for senior citizens) to your bank, provided your total income is below the taxable threshold.

What is the TDS rate for NRIs on FD interest?

NRIs are subject to a TDS rate of 30% on the interest earned from FDs, along with applicable surcharges and cess.

Can I claim a refund for TDS deducted on FD?

Yes, if your total income is below the taxable limit, you can file for a TDS refund while submitting your income tax returns.

Will TDS be deducted if I invest in a tax-saving FD?

Yes, even interest earned from tax-saving FDs is subject to TDS if it exceeds the specified exemption limit.