It is one of the most popular and reliable ways to save and invest in India to make use of fixed deposits. You can earn a good interest rate on Fixed Deposits over a set period of time (that can range from 7 days to 10 years). A variety of interest payment methods are available, from monthly to yearly. It is possible for senior citizens to pay up to 0.50 percent more in interest than the general population. You can also save money on taxes when you invest in Tax Saver FDs.
FD interest, however, is taxed. A TDS deduction is made at the source if the interest on an FD reaches a certain amount. In order to be a tax-conscious citizen, everyone must be aware of these requirements.
Tax deducted at source (TDS) is a form of tax collected by the Income Tax Department of the Government of India. It is handed over to the federal government. Deposits into your bank account are taxed at source rather than when the FD matures. Deductors will issue TDS certificates or Form 26As. Read further to know about tds on fixed deposit.
TDS Rates Applicable for Different Customers
The various TDS rates applicable for different customers are mentioned below:
- For Indian Residents: In the financial year 2021-22, the TDS on interest earned by Indian residents on fixed deposits would be 10%.
- For NRIs: NRIs must pay TDS of 30% plus relevant surcharges and taxes on interest generated on fixed deposits.
How TDS calculation is done for an FD
To understand how TDS is calculated, let’s take a look at the following example:
A Sumathi has two fixed deposits of Rs.1 lakh each and earns 10% interest per year. She earns Rs.20,000 in interest income from both FDs combined in one year. In such cases, TDS will be charged at 10% on the total interest income. So the TDS that has to be paid by Sumathi will be Rs.2,000.
TDS Waiver for Indian Residents
Indian residents can apply for a waiver of TDS on interest earned on fixed deposit. She earns Rs.20,000 in interest income from both FDs combined in one yeare start of the financial year to your financier. These forms must include a self-declaration that the tax on your estimated total income during the financial year is zero. Since your taxable income is nil, no TDS will be charged on the interest earned on your FD. You can also claim a refund of any TDS deducted if your total income falls below the minimum income tax slab.
How to save TDS on FD
There are many ways to save TDS on your fixed deposit such as:
If your income is lower than the lowest income tax bracket, submit Form 15G or Form 15H
If you are in the non-income tax bracket, file your income tax returns and claim TDS on the FD interest as a refund
Exemption Limit for TDS
There are different exemption limits for different types of TDS. They are as given below:
No TDS if total taxable income is less than Rs.2.5 lakh
Company FDs: TDS deduction limit is Rs.5,000 in a financial year and for senior citizens
How to Pay TDS
TDS can be paid to the Central Government in the following ways:
At authorized bank branches by submitting Challan 281
For corporate assesses and assesses other than company, for whom Section 44AB of the Income Tax Act, 1961, is applicable, e-payment is mandatory
Rules of TDS on FDs
Given below are the major rules about TDS on FDs that it is important to know about:
The bank will estimate your interest income on FDs for the year from all the FD accounts held with the bank
The fixed deposit interest income is calculated as per your income tax slab rates
Those in the highest income tax slab will have to pay tax in addition to the TDS
Form 15G is the form that has to be submitted by the general public for claiming TDS exemption if income is below the taxable limit
Form 15H is the form that senior citizens have to submit for TDS exemption
When the aggregate interest from all fixed deposits exceeds Rs.40,000 in a financial year, TDS is taken by banks and the post office