Learn all about what is TDS on Fixed Deposits and the applicable tax rates.
- A fixed deposit is a low-risk investment option.
- The money is locked in for a fixed term and you can earn interest on it.
- This FD interest income is fully taxable.
- At the time of payment of this interest, banks and lenders deduct a 10% tax.
- This is called tax deducted at source, and is levied by the lenders at a flat rate.
- This TDS is part of your overall tax liability under the Income Tax Act, 1961.
Introduction: TDS on Fixed Deposits
Fixed deposits have traditionally been a preferred savings tool among Indians. People put their money into fixed deposits (FDs) to earn interest income on it. In simple words, a fixed deposit is an investment option where you can deposit a certain sum of money in a bank for a specified period of time and earn interest on the same. The interest rates offered on FDs varies from lender to lender.
Fixed deposits (also called term deposits) are seen as a safe bet by many who wish to invest their money and earn extra income on it, without taking too much risk. In case of FDs, you get an insurance coverage of up to INR 5 lakh. This is like a safety net in the event that a bank collapses due to financial duress, and the guarantee is provided by the Deposit Insurance Guarantee Corporation of India (DIGCI). Like with all your income sources, you have to pay TDS on fixed deposits too. In this article, we shall attempt to understand the concept of TDS on FD.
What is TDS on fixed deposits?
- The interest income from an FD is fully taxable. Interest earned on FDs is taxed according to the income bracket (and hence, the tax slab) you fall under.
- At the time of depositing this interest into your account, banks and lenders deduct a tax at a flat rate of 10%. This is called tax deducted at source (TDS).
- The TDS on fixed deposit is applicable only if the interest earned on an FD in a financial year exceeds INR 40,000. This threshold amount is INR 50,000 in the case of for senior citizens.
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What are the Different TDS Rates on FD Based on Your Residency Status?
There are different rates of TDS on FD interest applicable based on whether you are a resident Indian or a non-resident Indians (NRIs). They are as under:
- For Resident Indians: 10%
- For Non-Resident Indians: 30% (plus applicable surcharge and cess)
Moreover, if you are unable to furnish your PAN Card, the bank deducts TDS at a rate of 20% (for resident Indians).
How to apply for a waiver on your TDS on FD?
You need to know the following to apply for a waiver on your TDS on FD.
- If you fall under the tax-exempt category, i.e., your total income is less than INR 2.5 lakh per year, you can seek a TDS waiver by submitting a Form 15G/15H right at the start of the year.
- If you are unable to submit these forms, you can still claim a TDS refund at the time of filing your year-end tax returns.
- There are also some ways to save on tax on FDs. A post office FD is one way as it does not attract any TDS deduction.
- You can divide the amount and put the money into fixed deposits in the name of your spouse or other family members. This is to try and keep the interest income under the INR 40,000 threshold.
- You should also know that if the TDS on FD deducted by the bank is more than your overall income tax liability, then you can claim a refund at the time of filing your ITR.
- The TDS deducted on interest income from FDs is thus a part of your total tax liability under the Income Tax Act.
As is apparent from the above article, you have to pay TDS on FD interest income. If you are eligible for waivers on FD TDS, ensure that you submit the relevant 15G/H form at the beginning of your FD tenure. In doing so, the bank will not levy any tax on your interest income.
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