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Fixed Deposits or FDs are a popular low-risk investment scheme offered by many large scale banks in India. It includes paying a lump sum amount and accruing monthly interests fixed at the start.

 

While many invest in FDs for safe long-term returns, many are unaware that the interest earned on FDs may be taxable. Banks deduct these taxes as Tax Deducted at Source or TDS before paying to the other party. 

How is TDS on Fixed Deposit Calculated

Fixed Deposits are the preferred form of long term investment for millions of Indians. Hence, it is important to know how this TDS is calculated in the first place. The table below denotes the various types of fixed deposits in the Indian banking and investment system:

Type of FD

TDS

Resident Indian FD Account

10%

Non-Resident Ordinary FD Account

30%

Non-Resident External FD Account

0%

Foreign Currency Non-Resident

0%

Time Deposit(Post Office)

0%

TDS makes the taxation process simpler for the customers since it is already deducted at the source, by the source. This source is ideally a bank or a NBFC. The rate of this deduction depends on the nature of the transaction and the amount in question.

TDS Rates for Different Customers

TDS like GST has a systematic tax structure based on the amount earned as interest. Here are a few of the rates for the different types of customers:

 

  • A 7.5% TDS is levied if the interest earned is greater than Rs. 5000, as per the new order from the Ministry of Finance passed on May 14, 2020.
  • If your income limit exceeds Rs. 40000, the rate of TDS is 10% of the interest amount earned.This income limit or threshold is Rs. 50000 for senior citizens.
  • An extra TDS is levied when the FD interest gained is over Rs. 5 lakh and Rs. 10 lakh. This rate is pegged at 10% and 20%, respectively.  This is in addition to the TDS rules set as per the Income Tax Act of 1961.
  • The rate of TDS varies according to the category of customers as well. For instance, the TDS rate for resident Indians is 10% of the interest earned, while it is 30% of the interest earned for non-resident Indians.
  • It also depends on the type of documents provided. If you’ve not provided your PAN details, the tax rate levied is higher.
  • The tax deduction rate for such accounts is 20% of the interest for Indian residents and over 30% for non resident Indians. The non-resident Indians may also have to pay other surcharges and cess tax as well.
  • For joint account holders, the TDS on Fixed Deposit is deducted against the PAN details of the primary account holder. The secondary account holder is not liable for the TDS deductions.

When is TDS Deducted?

Here are a few things to note about TDS deduction:

 

  • TDS on Fixed Deposit at 10% is levied when the interest amount is greater than Rs. 40000 per year.
  • The TDS on Fixed Deposit is relaxed for senior citizens. And set at Rs. 50000 per annum.
  • Only your interest amount beyond the exemption limit is taxable.
  • The threshold amount is Rs. 5000 per annum. In other words, you will pay no TDS on Fixed Deposit unless your interest amount exceeds Rs. 5000 per year.
  • You must look up the current threshold limits to know the actual rate of TDS you will incur.

TDS Waiver and how to Apply for it

The TDS waiver is meant for those that don’t fall under the taxable brackets. There are two types of TDS waivers in place in India today. These are Form 15G and Form 15H. Both of these provide waivers to specific groups as listed below:

 

Form 15G provides TDS waivers to any individual who has earned an income below  Rs. 2.5 lakh per year or Rs. 3 lakh for senior citizens.

 

Form 15H provides TDS waivers to senior citizens above the age of 60 years.  However, this individual must be earning less than Rs. 3 lakh per annum.

It should also be noted that the forms 15G and 15H are only applicable to Indian residents. There is no such TDS exemption for non-residents through these channels.

 

If you are looking to apply for a TDS waiver, follow the simple steps mentioned below:

 

Offline:

Visit the Bank where you have the FD account. Meet the Branch Operations Manager or the Branch Manager and ask for the relevant form, either Form 15G or Form 15H. Fill in all the details and attach all the physical verification documents such as your PAN card details, etc. Then get it approved and ratified by the bank. This process may take you a couple of days.

 

Online:

With India going digital for documents, several Indian banks have begun making the process of filing for a waiver fully online. For such an online process, you can follow the simple steps mentioned below:

 

  • Login to your bank’s net banking portal by filling in your username and password.
  • Search for the Tax section and select Tax Deductions or TDS from the list of options.
  • Select the relevant form, either Form 15G or Form 15H, from the options and fill it online.
  • eSign and submit necessary documents.
  •  Download and save the acknowledgement slip once completed.

However, the steps may slightly vary depending on the bank’s platform.

How to Pay TDS?

TDS on Fixed Deposits is deducted at the source of payment for the customer. So you don’t have to burden yourself with the repayments when opting for a fixed deposit account. The TDS will be deducted by the bank itself.

 

So, there are basically no steps you need to perform to pay your TDS on Fixed Deposits. It’s deducted as tax payable at the source!

Exemption Limit for TDS

There are a set of prescribed rules as per the Income Tax Act, Section 192, 193 and 194. A few of them have been discussed below:

 

  • TDS payable on salaries. The exemption limit for an individual is set at Rs. 2.5 lakh.
  • The TDS is payable on the interest earned on securities investments. The exemption limit is Rs. 5000 for an individual and Rs. 10000 per HUF, per annum .
  • TDS payable on winning the lottery is quite high and set at 30%. Any winnings from lottery gaming above Rs. 10000 has a TDS levied.
  • TDS payable on deemed dividend. The exemption limit is Rs. 5000.
  • TDS payable on rent. If the rent per annum exceeds Rs. 2.4 lakh.
  • TDS deductible on withdrawal of National Savings Scheme. The exemption limit is Rs. 2500.

These are the exemption limits for those that don’t fall under the TDS waiver categories. Most of these TDS exemptions are intended only for the Indian residents and do not extend to include the non-Resident Indians.

Frequently Asked Questions

  • ✔️What is TDS?

    TDS is the tax deducted at the source of payment. In other words, the end customer doesn’t need to pay this tax, as it is paid by the financial intermediary that is giving the pay. It is levied in various transactions in accordance with the Income Tax Act of 1961.

  • ✔️What is a fixed deposit?

    A fixed deposit scheme or FD is a type of investment wherein you invest a certain sum as a lump sum amount at a bank of your choice. You earn monthly interest on this amount payable at maturity. 

  • ✔️What is the TDS on Fixed Deposits?

    Yes, while Fixed deposits remain one of the most sought-after investment trends in our nation, many don't know that a TDS is levied on the interest earned. However, there are various categories of exemption under the TDS regime.

  • ✔️What is the usual time for fixed deposit maturity?

    The time period for the maturity of any fixed deposit fund varies from one year to a period of 60 months or 5 years. There are many banks that allow you to divest before maturity as well. 

  • ✔️What are the rates for TDS on Fixed Deposits?

    The TDS rate varies depending on the type of FD account and the amount of interest earned on the initial capital. This rate is 10%  for Indian residents and 20% for non-resident Indians if the interest earned is more than Rs. 40000.

  • ✔️What are the types of fixed deposits available?

    There are a few types of FD accounts available. These include Resident Indian FD Account, Foreign Currency Non-Resident Account, Non-Resident Indian FD Account and Non-Resident External FD Account to name a few. 

  • ✔️How can I apply for a TDS waiver?

    If you meet the set criteria, you can apply for a TDS waiver either online or at your home branch by filling up and submitting the Forms 15G or 15H. This process can take a couple of days.

  • ✔️Who can apply for a TDS waiver?

    Any resident of India with a PAN card can apply for a TDS waiver provided their annual income is less than 2.5 lakhs or they are above the age of 60 years with an income of less than 3 lakhs per annum. 

  • ✔️Can a foreign citizen apply for TDS waivers?

    No, a foreign citizen or a non-resident Indian cannot apply for a TDS waiver under any circumstance. You can get in touch with your bank for more details on waivers and exemptions.

  • ✔️What is the TDS on Rs. 10000 interest?

    The TDS levied on the interest amount of Rs. 10000 is 7.5% or around Rs. 750.  This is as per the May 14, 2020 order by the Ministry of Finance. 

  • ✔️Can I avoid paying TDS on Fixed Deposits?

    No, since TDS is paid at the point of purchase, by the source, there is no way to avoid paying TDS taxes. However, you can check and apply for waivers if you fit the criteria set. 

  • ✔️How to pay TDS online?

    TDS doesn’t need to be filed online or offline. You may, however, visit the official income tax homage to know about this process in detail. 

  • ✔️What is the TDS on Fixed Deposit rate for NRIs?

    NRIs or non-resident Indians pay a higher rate of TDS on interest. This rate is pegged at 20% and there are a few other cess and surcharges as well. 

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