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TDS on FD interest ensures smoother tax compliance for individuals and timely tax collection for the government.
Know how much TDS is deducted on FD interest
Tax On FD Interest Income: Tax Deducted at Source (TDS) on Fixed Deposit (FD) interest plays a crucial role in ensuring that the government collects tax on interest income at the time it is earned. This provision mandates banks and financial institutions to deduct TDS on FD interest once it surpasses a specific threshold. The deduction happens automatically before the interest is credited to the account holder’s account, simplifying tax compliance for taxpayers.
How TDS is Calculated on FD Interest?
Interest earned on FDs is fully taxable and treated as “income from other sources.” It is added to the account holder’s total income and taxed based on the applicable income tax slab. Here’s a detailed breakdown;
1. TDS Thresholds
For Resident Individuals:
- TDS is deducted if the total FD interest exceeds Rs 40,000 in a financial year (April-March).
- For Senior Citizens (60 years or older): The threshold is higher at Rs 50,000.
2. TDS Rates
- 10% TDS: Applied if the individual has provided their PAN card details to the bank.
- 20% TDS: Applied if PAN card details are not provided.
3. When TDS is Not Deducted
TDS is not applicable in the following cases:
- Below the Threshold: If the total interest earned is less than Rs 40,000 (or Rs 50,000 for senior citizens).
Submission of Form 15G or 15H:
- Form 15G: For individuals below 60 years, declaring their total income is below the taxable limit.
- Form 15H: For senior citizens, stating their total income is below the taxable threshold.
- These forms help avoid unnecessary TDS deductions by confirming that no tax is due for the financial year.
4. Special Considerations
- Cumulative FDs: Even if interest is not withdrawn annually, it is taxed on accrual. TDS will still be deducted.
- Taxable Income: FD interest, even after TDS deduction, must be added to total income and taxed as per the applicable slab.
- Refund Claims: If TDS deducted exceeds your total tax liability, you can claim a refund when filing your Income Tax Return (ITR).
5. How to Minimise Excess TDS Deductions?
- Provide PAN Details: Ensures TDS is deducted at the lower rate of 10%.
- Submit Form 15G/15H: Avoids TDS entirely if your income is below the taxable limit.
- Track Across Banks: Monitor interest earned across multiple banks, as the TDS threshold applies per bank.
TDS on FD interest ensures smoother tax compliance for individuals and timely tax collection for the government. By understanding these rules and leveraging provisions like Form 15G/15H, taxpayers can better manage their finances and avoid unnecessary deductions.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
