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Fixed deposits have been a very popular way of saving as well as investing for years. People of all age groups consider fixed deposits as the safest form of investment when they begin their journey of savings. FDs provide a fixed amount of return and are a reliable asset.

However, like all other sources of income, the interest that you earn on your FD is also an income and is taxable. According to the Income Tax Act, 1961, the interest earned on your FDs will be taxable according to your income brackets.

When Do You Have to Pay Tax on Your FDs?

The earnings on your FDs are calculated as a part of your gross annual income. From April of 2019, if you are earning an interest of more than 40000 INR on your FD, you are liable to pay 10% tax on it (if you are a PAN user).

Let’s learn about this in detail.

What is TDS on Fixed Deposit?

TDS stands for Tax Deducted at Source. In the case of fixed deposits (FDs), TDS refers to the tax that the bank deducts from the interest earned on your deposit before crediting it to your account.

Here's a breakdown of how TDS on FDs works in India:

  • Exemption Limits:
    • There's no TDS deducted if your total FD interest income in a financial year is below Rs. 40,000 for regular individuals and Rs. 50,000 for senior citizens (60 years or above).
    • If your total income (including FD interest) falls below the basic exemption limit, you can claim further exemption by submitting Form 15G or 15H to the bank.

  • TDS Rate:
    • If your FD interest income exceeds the exemption limit, the bank deducts 10% TDS on the interest amount.
    • Not providing your PAN card to the bank can result in a higher TDS deduction of 20%.

TDS on Non-Bank FDs (NBFC)

TDS rules for Non-Bank FDs (NBFC FDs) are different from regular bank FDs. Here's what you need to know:

  • Lower Exemption Limit: The threshold for TDS applicability on NBFC FDs is lower compared to banks. It's Rs. 5,000 - any interest income exceeding this amount becomes taxable.
  • Standard TDS Rate: Similar to banks, the TDS rate on NBFC FDs is 10% if your interest income surpasses the Rs. 5,000 limit.
  • Penalty for No PAN: Just like banks, NBFCs deduct a higher TDS (20%) if you don't provide your PAN details.

Remember:

  • Even if TDS is deducted, you might still need to pay additional tax during income tax filing if your total income falls under a higher tax slab than the 10% TDS rate.
  • You can claim a tax refund for any excess TDS deducted by filing your income tax return.

TDS on FD for Senior Citizens

Senior citizens (aged 60 years or above) get a benefit when it comes to TDS on FD interest. The exemption limit is Rs. 50,000. This means if your total FD interest income in a financial year is below Rs. 50,000, the bank won't deduct any TDS.

If your FD interest income exceeds Rs. 50,000, the bank will deduct a flat 10% TDS on the interest amount that surpasses the limit.

Providing your PAN card to the bank ensures the correct TDS rate is applied. If you don't submit your PAN, the bank is obligated to deduct a higher TDS of 20% on the entire interest income.

Tax Benefits and Refunds:

  • Senior citizens can get a tax deduction of up to Rs. 50,000 on their interest income from all sources (including FDs) under Section 80TTB of the Income Tax Act.
  • Even with TDS deducted, if your total tax liability is lower than 10%, you can claim a refund for the excess TDS amount while filing your income tax return.

How to Get a TDS Waiver on an FD?

To avail of a TDS waiver on your Fixed Deposit (FD) interest income, you can submit a declaration form to your bank. Here's what you need to do:

Forms for TDS Waiver:

There are two forms used for claiming a TDS waiver on FD interest, depending on your age:

  • Form 15G: If you are below 60 years old, you need to submit Form 15G.
  • Form 15H: This form is applicable for senior citizens above 60 years of age.

What the Forms Do:

Both Form 15G and 15H act as self-declarations to the bank. By submitting them, you're essentially stating that your total income for the financial year falls below the taxable limit, and therefore, no TDS should be deducted on your FD interest.

Eligibility for Waiver:

  • You can only claim a TDS waiver if your total income (including FD interest) is below the basic exemption limit for the financial year.
  • The current exemption limit is Rs. 2.5 lakh for individuals below 60 years old and Rs. 3 lakh for senior citizens between 60 and 80 years old. It's Rs. 5 lakh for senior citizens above 80 years old.

Submitting the Forms:

  • You can usually download these forms from your bank's website or collect them from a branch.
  • Fill out the form completely and accurately, including your PAN details.
  • Submit the completed form to your bank. It's recommended to do this at the beginning of the financial year (April 1st) to ensure the waiver applies throughout the year.

Frequently Asked Questions:

1. How is TDS calculated on fixed deposits?

TDS is deducted on FD interest exceeding Rs. 40,000 (Rs. 50,000 for seniors) at a rate of 10%.

2. Can TDS be claimed on FDs?

TDS itself isn't refundable, but it's a tax credit. You might get a refund if your total tax liability is lower.

3. How much FD interest is free of tax?

Up to Rs. 40,000 (Rs. 50,000 for seniors) of FD interest is tax-free.

4. How much tax do I pay on a 1 crore fixed deposit?

The tax depends on your income bracket. TDS deducted 10% initially, but you might owe more during tax filing.

5. How do I avoid tax on FD interest?

Submit Form 15G/15H if your income is below the taxable limit or consider tax-saving FDs.

6. Is 5-year FD interest taxable?

There are tax-saving FDs available on which you can enjoy tax exemptions. However, they have a lock-in period so you will not be able to withdraw any amount prematurely.

Disclaimer: This page includes information that has been compiled from many sources and is only offered for informational purposes. Since this type of data might change over time, we cannot guarantee that the information supplied or included within it is accurate. It is anticipated that the user would confirm with the relevant source prior to taking any choices or actions.

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