TDS on FD Interest Understanding Tax Deduction | SBI Life
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TDS on FD Interest Understanding Tax Deduction | SBI Life

Insurance Basics & Financial Advice In terms of investment instruments or products, Fixed Deposits, also referred to as term deposits, have remained popular in India because they are safe and offer the certainty of guaranteed returns. Nevertheless, it is crucial to understand that interest earned on such FDs is taxable under section 194A governing Tax Deducted at Source. The prime intent of this blog post is to ensure that people understand what TDS on FD interest is, the consequences they must face due to it, and how they can optimise it appropriately.

TDS on FD Interest: Understanding Tax Deduction | SBI Life

8 Minute |

TDS on FD interest

Understanding TDS on FD Interest

In terms of investment instruments or products, Fixed Deposits, also referred to as term deposits, have remained popular in India because they are safe and offer the certainty of guaranteed returns. Nevertheless, it is crucial to understand that interest earned on such FDs is taxable under section 194A governing Tax Deducted at Source. The prime intent of this blog post is to ensure that people understand what TDS on FD interest is, the consequences they must face due to it, and how they can optimise it appropriately.

What is TDS on Fixed Deposit?

TDS is short for Tax Deducted at Source. It is a procedure by which the bank that holds your fixed deposit deducts a part of the interest earned for payment of taxes. This tax is then debited to the government’s account by the bank without you having to pay any extra costs.

It is like paying for a part of the income tax that you are supposed to pay for the interest earned in advance.

How is TDS Calculated on Fixed Deposit (FD)?

The TDS criteria vary with age and the availability of a PAN card; therefore, it is advisable to determine the rate of TDS that will be charged on the interest of your FD.

TDS on FD Interest for Senior Citizens

TDS on Bank FD:

The most common type of FD is a bank fixed deposit. Here, the bank where your FD is held deducts TDS on bank FD interest based on the rules and regulations highlighted above.

TDS on Non-Bank (NBFC) FD:

Non-Banking Financial Companies (NBFCs) also offer FD schemes. The TDS rules for NBFC FDs are slightly different. The exemption limit for NBFC FDs is only ₹5,000, which means that TDS will be deducted if your total interest income from NBFC FDs in a financial year exceeds ₹5,000. The TDS rate remains the same at 10%.

TDS on FD Interest for Non-Senior Citizens

TDS for Senior Citizens:

Age 60 years and above: TDS is ₹ 50,000 for senior citizens, which means they get a higher exemption limit. This means that if a senior citizen’s total fixed deposit interest income for the year is ₹ 50000 at the most, it should not attract any TDS deductions.

TDS Rate: For individuals whose interest income crosses ₹50,000 per annum, TDS payment can be made at 10% of the income earned.

TDS for Non-Senior Citizens:

Age below 60 years: In the case of individuals below 60, a lower exemption limit of ₹40,000 applies. However, a small relief is that there will be no TDS if the total interest earned on all fixed deposits in a year is less than ₹40,000.

TDS Rate: If the interest income received crosses ₹40,000, then 10% TDS is applicable.

It is, therefore, important that you willingly present your PAN details to the bank. If you fail to submit your PAN, a higher TDS rate of 20% will be charged to your account, irrespective of your age or income slab.

Understand Everything about TDS on FD Investments

TDS on Bank FD

The most common type of FD is a bank fixed deposit. Here, the bank where your FD is held deducts TDS based on the rules and regulations highlighted earlier.

TDS on Non-Bank (NBFC) FD

Non-Banking Financial Companies (NBFCs) also offer FD schemes. The TDS rules for NBFC FDs are slightly different. The exemption limit for NBFC FDs is only ₹5,000. So, TDS will be deducted if your total interest income from NBFC FDs in a financial year exceeds ₹5,000. The TDS rate remains the same: 10%.

The TDS deducted from your FD interest is considered a pre-payment of your income tax liability. However, you may need to pay additional tax depending on your total income and tax slab.

What are the Rules and Regulations of TDS on FDs?

The rules and regulations governing TDS on FDs are outlined in the Income Tax Act, 1961. Here are some key points:

  • The bank/NBFC is responsible for deducting TDS at the source.
  • The TDS deduction happens when the interest is credited to your account or on maturity, whichever is earlier.
  • A TDS certificate (Form 16A) is issued by the bank/NBFC, reflecting the TDS deducted from your FD interest.

What is the Exemption Limit for TDS Deduction on FD?

As mentioned earlier, the exemption limit for TDS deduction on FD interest depends on your age:

  • Senior Citizens (60 years and above): ₹50,000
  • Non-Senior Citizens (below 60 years): ₹40,000

How to Pay Income Tax on Fixed Deposit Interest Income?

Here's how it works:

  1. When filing your income tax return, include the FD interest income and the TDS certificate (Form 16A) received from the bank or NBFC.
  2. The tax department will calculate your total tax liability based on your income.
  3. You will receive a refund if the TDS deducted is more than your actual tax liability.
  4. Conversely, if the TDS deducted is less than your tax liability, you will need to pay the remaining tax amount.

When to Pay Tax on FD Interest Income?

You are liable to pay taxes on your FD interest earnings whenever your total tax liability is more than what has been deducted as TDS.

How to Avail TDS Waiver on FD?

  • Submit Form 15H (for Senior Citizens): If you're a senior citizen ( 60 years or above) and your total income is below the ₹50,000 exemption limit, you may submit Form 15H to the bank/NBFC. This is a self-declaration that your earnings are below the taxable limits, and for this reason, no TDS deduction is required.
  • Submit Form 15G (for all ages): It applies to all non-senior citizens. In case your overall earnings from all sources are less than the exemption limit (₹2.5 lakh for FY 2023-24), you may submit Form 15G to avail TDS deductions on FD interest.
 

Disclaimer:
Our content given in this article is as per the existing provisions, laws and regulations as per the Income Tax Act, 1961 and Income Tax Rules, 1962 issued thereunder. Tax laws are subject to amendments made thereto from time to time. The benefits / guidance mentioned herewith should not be considered as opinion / view of the Company. We request to seek independent view from your personal tax advisor on applicable tax benefits / guidance under the said article.

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