FD Interest is taxable at your slab rate 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 rate on fixed deposits (FDs) is 10% if the interest amount for the entire financial year exceeds Rs 10,000. The TDS rate 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 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.
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 his principal amount that he had invested. FDs are a relatively safe investment option and FDs up to Rs 1 lakh are guaranteed by the Deposit Insurance Guarantee Corporation of India (DIGCI)
Ways to Reduce or Save Tax on Fixed Deposits
- 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.
- You can open your FD in a post office branch instead of a bank. No TDS is deducted on post office fixed deposits.
- You can invest in 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, spouse and yourself (adding up to Rs 3 lakh), the interest per fixed deposit comes to Rs 7,500. This is below thr 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.
- If you open fixed deposits in different branches and in different banks, it can help you to save or reduce the taxes. Explaining this with an example, if you want to invest Rs. 200,000 and the interest rate is 10%, you will get 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 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.
- 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 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 FD
- If the bank has deducted TDS 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 the 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 FD maturity amount then use FD Calculator.
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.
Current FD Rates in India
| Banks | Best Fixed Deposit Interest Rate* (in % p.a.) | Tenure | |
| Regular Citizens | Senior Citizens | ||
| IndusInd Bank | 7.65% | 8.15% | 1 year to less than 1 year 2 months |
| DCB Bank | 8.05% | 8.55% | 15 months to 24 months |
| Ujjivan Small Finance Bank | 8.50% | 9.00% | 799 days |
| Kotak Mahindra Bank | 7.30% | 7.80% | 365 days to 389 days |
| Yes Bank | 7.50% | 8.00% | 18 months 8 days to 18 months 18 day |
| ICICI Bank | 7.50% | 8.00% | 2 years 1 day up to 3 years |
| HDFC Bank | 7.40% | 7.90% | 2 years 1 day to 3 years |
| SBI | 6.85% | 7.35% | 5 years and up to 10 years |
| RBL Bank | 7.75% | 8.25% | 12 months to less than 24 months |
| Axis Bank | 7.60% | 8.25% | 17 months to 18 months |
| DBS | 7.50% | 7.50% | 2 years and 6 months |
| IDFC Bank | 8.25% | 8.75% | 3 years 1 day to 10 years |
| Bandhan Bank | 7.40% | 8.15% | Above 18 months to less than 5 years |
| Utkarsh Small Finance Bank | 8.50% | 9.00% | 456 days to less than 2 years |
| Jana Small Finance Bank | 8.50% | 9.10% | More than 2 years up to 3 years |