TDS on FD Interest

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 FD Interest Calculated

Fixed Deposits are the preferred form of long-term investment for millions of Indians. Hence, it is important to know how TDS on bank interest and NBFC interest on FDs is calculated in the first place. The table below denotes the various types of fixed deposits in the Indian banking and investment system and the FD tax rates that follow:

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 on FD Interest 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 on interest rate 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 on interest on FDs 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 deduction on FD.

When is TDS Deducted?

Here are a few things to note about TDS deduction on FDs:

• 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.

Who Deducts TDS on Fixed Deposit Interest?

In the case of fixed deposits, the bank or non-banking financial company deducts taxes at the source. This TDS is deducted from your interest returns, be it cumulative payouts or non-cumulative payouts. 

Here’s how the deductions will take place for various categories. 

Indian Residents and NRIs

Given below a concise explanation of how TDS on interest limits work for Indian Residents and NRIs.

• PAN Shared

With the PAN present, you will be liable to a 7.5% source-deduction on your interest returns. This can be applied to an accumulated return of ₹5,000 and above.

• PAN Not Shared

For those who haven’t shared their PAN, the tax deduction applicable is 20% on interest returns. NRIs are liable to a 30% minimum TDS limit on interest in such cases. 

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 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 on FD?

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 bank itself will deduct the TDS.

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!

You could also utilise platforms that offer FD TDS calculators to help you estimate the kind of and the amount of taxes you will be paying. 

Exemption Limit for TDS on FD

There are a set of prescribed rules as per the Income Tax Act, Section 192, 193 and 194. A few of the FD interest TDS limits on exemptions have been discussed below:

• TDS payable on salaries. The FD TDS limit on exemptions 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.

You can use a fixed deposit calculator to compute the returns that you will receive. The FD interest rate calculator is a simple and easy to use tool that helps you determine the interest amount that you would earn on your investment in deposits based on the amount, tenor and interest rate.

Rules of TDS on FDs

Here are the major rules you must follow regarding TDS on FDs.

• Your bank/NBFC will determine your yearly income based on all the FDs you own with that particular bank or NBFC to apply TDS on FD interest for individuals

• The calculations will be made in accordance with your income tax slab

• If you come under the highest income slab, you will be required to pay additional taxes along with the TDS rate on FD interest

• Senior citizens are to use Form 15H in order to apply for tax exemptions

• Those under the age of 60 years need to furnish form 15G for tax exemptions

• When your aggregate interest returns ₹40,000 in a particular financial year, TDS will be deducted