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

The interest earned on a Fixed Deposit (FD) is subject to tax, based on the income tax slab you fall into. There is TDS (Tax Deducted at Source) on FD interest along with any applicable surcharge or cess. For example, if your total annual income is above Rs 10 lakh, you fall into a 30% tax slab. If the interest earned on FD is Rs 1 lakh, you will pay Rs 31,200 as tax (30% income tax plus 4% cess on tax paid).

The TDS on Fixed Deposit is 10% if your interest for the entire financial year exceeds Rs 40,000 for the Assessment Year (AY) 2024-25. If you do not provide your PAN Card to the Bank, the TDS on FD interest will be 20% or the maximum marginal rate according to existing Income Tax rules.

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.

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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