When you invest in a fixed deposit, it is not just about the interest you earn but also about understanding the tax implications associated with it. In India, the Income Tax Act, 1961 governs the taxation on the interest accrued from FDs. While your actual tax liability on FD interest aligns with your income tax slab, the Tax Deducted at Source (TDS) plays an important role in the preliminary tax collection process.
What is TDS on fixed deposits?
According to section 194A of the Income tax Act, TDS is applicable on FD interest when the interest income exceeds a certain threshold in a financial year. Thus, the tax on fixed deposit interest is deducted before it gets credited or paid out to the account holder.
TDS ensures that the person or entity making the payment fulfils the tax liability. As a taxpayer, it saves you from the hassle of paying tax on this income separately.
Threshold limit for TDS under the Income Tax Act
For bank fixed deposits, the TDS threshold is set at ₹40,000 for individuals below 60 years and ₹50,000 for senior citizens (above 60 years). The rate of TDS is 10% if the investor provides their Permanent Account Number (PAN), it can be up to 20% if the PAN is not linked.
How to avail TDS waiver on fixed deposit (FD)?
To avail a TDS waiver on an FD, you need to submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens aged 60 years and above) to the bank. These forms serve as a declaration that your total income is below the taxable limit, and thus, you are eligible for a TDS waiver on the fixed deposit interest.
According to the Income Tax Act, the exemption limits for different age groups are:
- ₹2.5 lakh for individuals below 60 years
- ₹3 lakh for senior citizens aged 60 to 79
- ₹5 lakh for those aged 80 or above
To reduce your tax burden, you can leverage a tax-saving FD as they offer a tax deduction of up to ₹1.5 lakh under section 80C. While TDS is applicable on the interest earned, the tax benefits from such a deduction can offer a useful way to offset these obligations and reduce your overall tax liability.
You can easily book a tax-saving FD through the INDIE app by IndusInd Bank. INDIE Fixed Deposits offer a 100% digital process for booking your FD online. All you need are your Aadhaar card and PAN card details. Enjoy an attractive fixed deposit account interest rate of up to 7.75% p.a., along with a hassle-free and paperless procedure.
More rules and regulations of TDS on fixed deposits
There are several rules and regulations concerning TDS on FDs that you, as a taxpayer, must be aware of:
- TDS applies only when the interest from FDs surpasses the specified threshold within a financial year.
- The bank holding the fixed deposit has the responsibility of deducting TDS.
- If your PAN is provided, TDS on FD interest is deducted at a rate of 10%.
- Without PAN details, the deduction rate on FD interest rises to 20%.
- For fixed deposits held in joint accounts, the TDS is deducted using the primary holder’s PAN. The secondary holder isn’t subject to TDS deduction.
- The bank deducts TDS when interest is credited, not at fixed deposit maturity.
- Any TDS deducted is recorded against the depositor’s PAN.
Key takeaways
The TDS on FD interest is a critical aspect that you must understand to manage your tax liabilities efficiently. By staying informed about the TDS, applicable rates, and thresholds, you can plan your FD investments wisely and optimise your returns.
Moreover, by submitting Form 15G or 15H, linking your PAN, and opening a tax-saving FD, you can significantly mitigate the impact of tax on your overall income. This way, you not only manage your tax obligations effectively but also ensure that your investments remain both profitable and compliant with the law.
