TDS on FD Interest - How Much Tax is Deducted on FD Interest

Tax Deducted at Source (TDS) on Fixed Deposits refers to the tax deducted by banks or financial institutions on the interest earned on Fixed Deposits if it exceeds the specified threshold during a financial year. For individuals younger than 60 years, TDS is applicable when the annual interest income exceeds ₹ 40,000. For senior citizens, this limit is ₹ 50,000. The standard TDS rate is 10%, but it increases to 20% if the depositor has not provided their Permanent Account Number (PAN).

To avoid TDS deductions, individuals can submit Form 15G (for those who do not have taxable income) or Form 15H (for senior citizens) to declare that their total income is below the taxable threshold. Even if TDS is deducted, depositors must report their total FD interest in their Income Tax Returns (ITR) to ensure compliance and adjust their tax liabilities accordingly. TDS simplifies tax collection while enabling efficient tax management for individuals.

How is TDS Calculated on Fixed Deposit (FD)?

The interest income you earn from an FD is fully taxable. The interest earnings form a part of your total tax liability. You must also know that when you earn interest on an FD in a year, it is essentially clubbed with your annual income. Based on the total income, your tax slab is determined. Since the interest income earned on FD is considered "income from other sources," it is therefore charged under Tax Deducted at Source or TDS. When your bank credits your interest income into your account, the TDS gets deducted right at that time. Let's get to know some pointers related to tax on FD:

• The bank doesn't charge tax on Fixed Deposit if your overall income is less than Rs 2.5 lakh in a year. However, some lenders may ask you to submit Form 15G or 15H to claim the deductions.

• If you want to save on TDS, make sure you submit Form 15G and 15H to the bank at the beginning of the financial year to avoid additional TDS.

• If your interest income from all FDs is less than Rs 40,000 in a year, the income is TDS exempt.

• On the other hand, if your interest income is over Rs 40,000, the TDS would be 10%. Besides, if you do not have a PAN card, the bank can deduct 20% of TDS.

What is the Exemption Limit for TDS Deduction on an FD?

Knowing the exemption limits for Tax Deducted at Source (TDS) on Fixed Deposits (FDs) is important for effective financial planning. As per the current Income Tax rules, the exemption limits vary based on the age and taxable income of the depositor.

The exemption limit for TDS on FDs is Rs 40,000 for individuals excluding senior citizens. This means TDS will not be deducted if the interest earned on an FD in a financial year is below Rs 40,000. On the other hand, senior citizens enjoy a higher exemption limit of Rs 50,000 acknowledging their financial circumstances.

Individuals with a total taxable income of less than Rs 2.5 lakh are completely exempted from TDS on their FDs. This exemption is a relief for individuals with lower incomes ensuring that they are not burdened with tax deductions on their FDs.

It is important to stay updated with the latest Income Tax guidelines as these exemption limits are subject to change. Regular updates from official sources and financial institutions will help you to make informed decisions and stay compliant with the latest regulations concerning TDS on FDs in India.

What is TDS on FD Interest for General and Senior Citizen?

Income tax rules regulate TDS or Tax Deducted at Source on FD interest. ICICI Bank offers high FD interest rates. For senior citizens it is 7.80% while general citizens receive 7.25%. TDS at 10% is withheld unless Form 15G/15H is filed if the yearly interest reaches ₹40,000 (₹50,000 for seniors citizens).

How to Avail TDS Waiver on an FD?

To avoid TDS deduction on your FD interest in India, you can submit either Form 15G or Form 15H to your bank. These forms serve as a self-declaration, informing the bank that TDS should not be applied on FD interest as your income is below the basic exemption limit. If your age is below 60 years, use Form 15G and if your age is 60 years or above, use Form 15H. By providing these forms to your bank, you ensure that TDS is not deducted, allowing you to receive your full FD interest without tax deductions provided your income remains within the exemption limit.

What is the Purpose of Form 15G and Form 15H 

Forms 15G and 15H are self-declaration forms that can be submitted to avoid Tax Deducted at Source (TDS) on specific income. Form 15G is for individuals below 60 years while Form 15H is for senior citizens (above 60 years). If the total income is below the taxable limit, these forms can be used to declare that no tax is payable. By submitting these forms, individuals can save TDS on interest income from Fixed Deposits (FDs), Recurring Deposits (RDs) and other sources ensuring they receive the full amount without tax deduction.

Let's Understand the TDS on FD with Example

Mr Anand has three FD Accounts with three different lenders. Bank A fetches interest earning of Rs 50,000 per annum, while Bank B helps him earn Rs 30,000 per annum and Bank C gives him an interest of Rs 20,000 per annum.

On the basis of the TDS, Mr Anand is liable to pay 10% TDS, as his interest earnings exceed Rs 40,000 in a year. The tax department doesn't consider your total interest earnings from all the banks. TDS is only on the interest amount that exceeds Rs 40,000 from Bank A. For the other two accounts, Mr Anand will get a Fixed Deposit income tax exemption.

Tax Deductions on FDs for Senior citizens:

Just like elders are offered special interest rates on FDs; similarly, tax deductions are different for them. In the case of Senior citizens (60 years and above), the TDS exemption limit is Rs 50,000 under Section 80TTB of the Income Tax Act.

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