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What is TDS on Fixed Deposit (With Exemption Limit, Calculations, and More)
Posted on Tuesday, May 28th, 2024 | By IndusInd Bank
Like how you’re charged with Tax Deducted at Source (TDS) on your monthly income, you’re also taxed on investment instruments like Fixed Deposits.
Your TDS on FD interest may not qualify FDs as a tax-saving tool like a public provident fund (PPF). In case you don’t know, TDS is the amount the sender deducts before the payee receives the money. This is paid to the central government on behalf of the recipient.
Let’s understand how tax on interest on fixed deposits is determined, whether any FD interest exemption exists, how to save tax on FD interest, and commonly asked queries on FD-related TDS.
What is TDS on Fixed Deposit?
TDS on fixed deposits is the amount the bank minuses from the investor’s premium and interest combined after the FD has matured. It is typically calculated via a predetermined percentage of the final payout and paid to the government as a tax. Next, this is added to the recipient’s income tax accounts and eventually adjusted as per their respective income tax returns.
TDS = (Interest Generated) * TDS Percentage Rate
How is TDS Calculated on FDs?
The amount of TDS deducted from FDs is calculated based on the interest income generated by the FD over a financial year. The calculation considers factors that include your applied interest rate, deposit amount, tenure, and applicable tax slabs.
Start by determining the total interest income from your FD for the financial year. You can use an FD interest rate calculator for this data.
The one-thumb rule states that anyone below 60 years of age whose interest income from all FDs yearly exceeds ₹40,000, is charged a 10% FD TDS rate.
If you don’t have a registered PAN, expect to pay 20% TDS. Additionally, all the above rules remain the same for senior citizens, except that their interest earnings should exceed ₹50,000 and not ₹40,000.
Also Read: Understanding the TDS (Tax Deducted at Source) on Current Account Interest
Is There an Exemption Limit for TDS Deduction on FDs?
The present Indian taxation scenario establishes exemption limits based on the account holder’s taxable income and age. For example, account holders whose yearly earnings are under ₹2.5 lakhs are exempted from fixed deposit tax deductions on their returned interest. This is an advantage for low-income bracket earners since their earnings on FD do not attract TDS.
Also, you enjoy a tax exemption on the interest of FDs that return an annual income under ₹40,000. But if you’re a senior citizen, this exemption limit is raised to ₹50,000. Thus, senior citizens are charged the standard 10% FD TDS rate if they earn anything more than ₹50,000 through FD interest income yearly.
In brief, you’re eligible for an FD interest tax deduction if your yearly interest income doesn’t exceed ₹40,000.
Use our FD interest rate calculator to understand how much interest you’ll be earning over a fixed period.
Can Form 15G and 15H Help in Exemption of Income Tax on FD Interest?
Yes, filling out Forms 15H and 15G for FD interest tax exemption can help account holders with a yearly income under ₹2.5 lakhs pay zero taxes on their FD investment.
Similarly, Form 15H also helps avoid tax on FD investments, but exclusively for senior citizens above 60 years of age. Here are three conditions to remember before filling out Form 15H to prevent income tax on FD interest:
- The investor must be 60 years old or under
- Yearly earnings must not exceed ₹3 lakhs for senior citizens
- Yearly earnings must not exceed ₹5 lakhs for super senior citizens (those 80 or above)
- Must be an Indian citizen
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
