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TDS on Fixed Deposits (FDs)

TDS on Fixed Deposit Interest

Last Updated 23rd Sep 2020

The standard rate of TDS on FD was 10% of the earned interest. For the financial year 2020-21, the TDS on FDs is 7.5, effective from May 14, 2020. However, the TDS on interest is 20% of the earned interest if the investor does not have PAN card. However, TDS on FD interest may vary as per the earned interest and the residential status of the investors. Below is the TDS rates on the different type of FDs.

Fixed Deposit TDS Rate
NRO (Non-Resident Ordinary) 30%
NRE (Non-Resident External) None
FCNR (Foreign Currency Non-Resident) None
Time Deposit (made with post office) None

What is a TDS on Fixed Deposit?

Fixed deposit is an investment option offered by banks and non-banking financial entities, where investors invest an amount of money for a certain tenure and receive the total corpus including the principal amount and the gained interest at maturity. The FD interest rates may vary from one provider to another. The tenure of the FDs is generally 7 to 10 years.

Fixed deposit is highly advised to the investors opting for this investment option, to get a clear idea of the tax on savings interest applicable for this investment option. One such tax deduction applicable for Fixed Deposits is TDS or Tax Deducted at Source. Now the question is, what is TDS tax? TDS is deducted on the earned interest if the amount crosses the pre-set limit. The payer is required to deduct the due tax before paying to the payee. As per the Income Tax Act of 1961, TDS is deducted on the interest earned on the Fixed Deposit, provided they fall in the taxable category. TDS on interest earned on fixed deposits is only applicable if the gained interest is more than ₹ 10,000.

Ways to Reduce or Save Tax on Fixed Deposits

Investors can reduce or save tax such as TDS on fixed deposit in the following ways.

  • Invest at the right time: When an investment is made in the middle of a financial year, the earned interest gets divided in two financial years. Therefore, the chance of the earned interest crossing ₹ 10,000 becomes less and thus TDS on FD interest can be avoided.
  • Submit the relevant forms: In the case of individuals earning less than ₹ 10,000, forms like 15G and 15H can be submitted to the respective bank or non-banking financial entity to avoid TDS on bank interest. Form 15G is for individuals below 60 and 15H is or senior citizens.
  • Divide investment: You can save interest on TDS by dividing your investment into several banks or non-financial banking entities instead of investing in a single FD. Investment in a single account has more chances of exceeding ₹ 10,000 mark than investing the same amount in more than one FDs.
  • Go for post office savings: Investors can opt for post office instead of banks as no TDS is deducted on post office fixed deposit whereas TDS on bank interest is applicable.

How is TDS on FD calculated?

To understand TDS on FDs, one must know what is TDS and how is it calculated. The idea of TDS has been already discussed. Let’s find out how to calculate TDS. 10% of the gained interest is deducted as TDS when the interest is more than ₹ 10,000. Suppose you have invested ₹ 3,00,000 in fixed deposits with an interest rate of 10% per annum. Therefore, you will gain ₹ 30,000 interest in every financial year. Now, the TDS on the FD will be 10% of the gained interest i.e., ₹ 3,000. In case you are not showing any PAN card, the TDS rate will be 20% of the earned interest i.e., ₹ 6,000.

Key point about TDS on FD

  • TDS on fixed deposit is deducted based on earned interest, not on the principal amount.
  • Investors who fall in the higher income tax slab rates of 20% and 30% are required to pay the tax charged over TDS as self-assessment tax.
  • If the investors are liable for a lower rate of tax than charged by the bank, they can claim a refund of the excessive amount in their income tax returns from the Income Tax Department.
  • The tax on interest should be paid annually and not at the time of maturity as banks calculate the TDS when the interest is due for the deposit and not when they pay it.
  • The interest gained on such deposit accounts is generally added to the total income and tax is charged accordingly. This income is shown in the income Tax Return sheet under the Income from Other Sources section.

Rules and Regulations as far as TDS on FDs are concerned

The following rules and regulations are to be kept in mind for TDS on FD.

  • Applicable to: TDS is applicable only when the gained interest on the principal amount crosses ₹ 10,000 in a financial year. The TDS on interest can be anywhere from 10% to 30%.
  • TDS calculation: TDS deducted on fixed deposits is generally 10% of the gained interest. However, if the investors fail to provide PAN card, the TDS is deducted at the rate of 20%.
  • TDS for senior citizens: Earlier the interest limit for TDS was ₹ 10,000 per annum for senior citizens. However, in the Union Budget of 2018, the interest limit for senior citizens was raised to ₹ 50,000.
  • TDS on joint accounts: In case of joint accounts, TDS is deducted from the primary account holder’s PAN and the secondary account holder remains excluded from the tax deduction.
  • Tax saver FDs are not an exclusion: Interest gained on tax saver fixed deposits is subject to TDS as well. As far, TDS is concerned, rules and regulations are the same for regular FDs and Tax saver FDs.
  • Automatic deduction: At the end of a financial year, the banks and non-banking financial entities automatically deduct the TDS from the FD account. The account holders do not need to pay any separate amount.

FAQs

How can I save TDS on FD?

You can save TDS on FD in the following ways.

  • Invest in the middle of a financial year as the interest will get divided into two financial years and will have a less chance of crossing the limit of ₹ 10,000.
  • Submit the 15G and 15H forms to prevent TDS deduction.
  • Divide the investment into multiple FDs across multiple banks.
  • Invest in post office fixed deposits.

Does bank deduct TDS on FD interest?

Yes, as per section 80C of Income Tax Act 1961, banks and non-banking financial entities deduct a particular amount based on the interest earned on FDs as TDS, if the earned interest crosses the limit of ₹ 10,000 in a financial year. For senior citizens, the limit is ₹ 50,000. TDS can be deducted at a rate varying from 10% to 30%.

How much amount of FD interest is tax-free?

The tax-free amount of FD interest is generally ₹ 10,000 in a financial year. However, FD interest up to ₹ 50,000 earned by senior citizens is tax-free. NRE and FCNR FDs along with Time Deposits or Recurring Deposits made at post office are tax-free.

What is the limit of TDS on interest?

The limit of TDS in interest gained on fixed deposit is ₹ 10,000 in a financial year. For senior citizens, the limit is ₹ 50,000. However, on the interim budget of 2019, the limit of TDS has been raised up to ₹ 40,000, effective from 2020-21 (annual year).

How can I get a TDS refund?

If the respective provider has deducted more amount as TDS than your actual liability, you can file for a refund to the Income Tax Department. You can claim the excessive amount back by filing an income tax return. You will have to provide your account details while filling for a TDS refund. You can visit the official website of Income Tax and download the required form.

What is the exemption limit for TDS?

The exemption limit for TDS on FD interest is ₹ 10,000 per financial year. For the senior citizen, the exemption limit for TDS has been raised up to ₹ 50,000 This TDS exemption does apply for NRE FDs, FCNR FDs, Recurring Deposits made with post office as these FDs are not subject to TDS deduction.


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