TDS on Fixed Deposits: Some Important FAQs

Fixed deposits are one of the best options to ensure savings because of their high-interest rates. You can choose a deposit with compounding benefits or one with monthly or quarterly payout options.

You can also go for the sweep-in option where you can link your fixed deposit to your savings account. If there is a deficit in your savings account, that amount will be taken from your Fixed Deposit. Since smaller units are involved in the deposit, the loss of interest is minimal.

The interest income generated from these deposits are, however, taxable and should be declared as part of your gross income.

What is TDS?

Tax Deducted at Source (TDS) is the tax banks deduct automatically when your interest accrues. TDS is deducted on your interest income from FD in the following scenarios.

• Your interest income from all your Fixed deposits amounts to more than 40000 rupees per year. Earlier, TDS was deducted if the interest income was more than Rs. 10000 per year.
• Your gross income is more than the minimum taxable income per year.
• In case of senior citizens, the yearly interest income limit is 50000 rupees.

How Much TDS Is Deducted?

Having your PAN linked to your bank account can save your money when TDS is calculated.

If you have more than one fixed deposit with a bank, the interest from all the deposits is calculated. If the amount exceeds RS. 40000 per year, TDS is deducted at 10% by the banks.

If your PAN is not linked to your bank account, the TDS is doubled to 20%

Is My Interest Income Taxable Even After TDS Is Deducted?

Yes. Your income from the fixed deposit interests is taxable at the same rate as your gross income. You need to file it under the 'Income from other sources section' on your tax document. Your bank TDS will be taken into account, and the Income Tax department will make appropriate tax adjustment.

What If My Gross Income Is Not Taxable?

When your annual income, including the interest income from fixed deposits, falls below the minimum taxable amount, the banks cannot deduct TDS. Make sure to file Form 15G and 15H to the bank beforehand. In case TDS is already deducted, you can get a refund from the Income Tax department.

What About Tax Saving Fixed Deposits?

Tax Saving Fixed Deposits are a great tool for a tax deduction, but it must be understood that the interest income does not enjoy the deduction. Under Section 80C of the Indian Income Tax Act, you can claim a deduction for up to an amount of 1.5 lakh rupees a year. The tax deduction is available only to the first holder in case of joint holders of the deposit.

When to Pay Tax on My FD?

It is advisable to pay tax on interest income every financial year above the TDS on Fixed Deposits. If you wait until maturity, your interest income can fall under a higher taxable slab and cost you more.

If your total tax liability exceeds 10000 rupees per year, you may be expected to pay Advance tax throughout the year. If you are a salaried professional, this tax might not be applicable because of automatic TDS deduction. Senior citizens without business are exempt from Advance tax.

Fixed deposit is a solid investment that grants you decent and reliable returns. Ignoring your interest income from fixed deposits while filing income tax can cost you dearly. Even if the bank has deducted TDS at 10%, you may have to pay additional tax on your interest income if you belong to a higher tax bracket or 20 or 30%. Therefore, it is essential to include income returns from all your fixed deposits while declaring your gross income.

Savings account are the most conventional methods of saving money, and they have been around for a long time.