TDS on Fixed Deposit Schemes

FD Interest is taxable at your slab rate or there is TDS on FD interest along with applicable surcharge/cess. For example, if you have a total income of Rs. 10 lakh per annum, you will be in the 30% tax slab. Let’s say your FD interest is Rs. 1 lakh. It will face a tax of Rs. 31,200 (tax rate of 30% and 0.4% cess). The TDS on fixed deposit is 10% if the interest amount for the entire financial year exceeds Rs. 10,000 for AY 2024-25. In the interim budget 2019, this TDS deduction limit on FD has been increased to Rs. 40,000 annually which is applicable in AY 2024-25. Under existing Income Tax rules, the TDS rate on FD interest is 20% if you do not provide your PAN Card to the bank.

For NRO (Non-Resident Ordinary) FDs, the TDS rate is 30%. For NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) FDs, there is no TDS because these FDs are tax-free. The details of the TDS deducted by the bank are uploaded in Form 26AS. No TDS is deducted on either Time Deposit (FD) or Recurring Deposit (RD) made with a post office. Senior Citizens (those above 60) can get up to Rs. 50,000 per year in FD interest tax-free and no TDS will be deducted for interest received up to Rs. 50,000 per annum for them.

Ways to Reduce or Save Tax on Fixed Deposits

Here are a few key ways to reduce/save tax on FD interest or TDS on FD interest:

• Submit Form 15G/15H: If your total income for the year is below Rs. 2.5 lakh, you can submit or use form 15G/15H. This will ensure that the bank does not deduct TDS since income does not fall in the taxable slabs and you are not liable to pay any taxes.
• Open FD Account in Post Office: You can open your FD in a post office branch instead of a bank. No TDS is deducted on post office fixed deposits. 
• Invest in the Name of Family Members: You can invest in the names of family members like spouses, parents etc. The tax on fixed deposit interest income is calculated for an individual and the tax they are charged depends on the slab rate under which they fall. This can be explained through an example.
  If you wish to invest Rs. 300,000 in fixed deposits which give an interest of 10%, the interest earned will be Rs. 30,000 and the TDS deducted is Rs. 3,000. Now instead of depositing all this amount in your name, you deposit Rs. 75,000 each in the name of your father, your mother, your spouse and yourself (adding up to Rs 3 lakh), the interest per fixed deposit comes to Rs. 7,500.
  This is below the threshold of Rs. 10,000 and no TDS will be deducted. However doing this can attract the clubbing provisions of the Income Tax Act, 1961 in which the income of your spouse/other family members is clubbed with your income. Consult a CA before you do this.
• Have FDs in Different Banks: If you open fixed deposits in different branches and in different banks, it can help you save or reduce taxes. Explaining this with an example, if you want to invest Rs. 200,000 and the interest rate is 10%, you will get an interest income of Rs. 20,000. Since this figure exceeds Rs. 10,000 your bank will deduct TDS on it. However, if you divide this FD between 3 different banks, you will get an interest of Rs. 3,333 in each bank. Since each amount (Rs. 3,333) is below the threshold of Rs. 10,000 the banks will not deduct TDS on the same.
• Choose the Right Investment Time: You can invest at the right time of the year. If you make the FD amount closer to the end of the financial year or the middle of the year, TDS will be distributed in two years. This may result in the interest calculation for a particular year falling below Rs. 10,000 and in such a case, no TDS will be deducted.

Points to Know About TDS on Fixed Deposit 

• If the bank has deducted TDS on FD but you are liable for a lower rate of tax, you can claim the amount back as a refund in your income tax return from the Income Tax Department.
• If you fall under the higher income tax slab rates of 20% and 30% you will need to pay the tax over the TDS charged as self-assessment tax.
• The banks calculate TDS at the time the interest is due for the deposit and not when they pay it. Thus, the tax on the interest income should be paid annually and not at the time of the FD maturity. If you want to calculate the FD maturity amount then use FD Calculator.

What is a Fixed Deposit?

A fixed deposit is a saving instrument where you can deposit a sum of money for a fixed period of time and you get can earn interest on the same. On maturity of the fixed deposits, the depositor gets back the interest earned along with the principal amount that he had invested. FDs are a relatively safe investment option with fixed returns and scheduled bank deposits including FDs up to Rs. 5 lakh are guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Read More:  Fixed Deposit

TDS on Recurring Deposits (RDs)

Recurring Deposits are deposits made at regular intervals. For example, an RD of Rs. 10,000 per month. Interest on RDs is taxable fully as per your slab. However, for senior citizens, interest income from RDs/FDs up to Rs. 50,000 per annum is exempt. The TDS provisions on RDs are the same as TDS on FD. TDS is deducted on RDs if the interest payable for them in a single bank is more than Rs. 10,000.

FAQs

Q. Can I get FD interest without TDS in case my income is below the taxable limit?

Yes, you can claim FD interest without TDS if your income is below the taxable limit by submitting Form 15G and Form 15H in case of senior citizens.

Q. Can I claim a deduction for the interest income earned from FDs?

No, the Income Tax Act does not provide for a deduction on interest from FDs.

Q. Can I save tax by investing in fixed deposits?

If you invest in a tax-saving FD scheme, you can claim tax benefits up to Rs. 1.5 lakh per annum under Section 80C.