TDS on a Fixed Deposit: All you need to know

Did you know that the Tax Deducted at Source (TDS) can be reduced if you register your PAN (Permanent Account Number) Card details with the financial institution you have the Fixed Deposit (FD) account? A tax-saving fixed deposit can also help you exempt taxes. You can avoid or reduce TDS if you create smaller FDs under the names of different family members. If your income falls under the taxable limit, you can submit form 15G or 15H and exempt TDS on an FD.

A fixed deposit is one of the most popular investments as it guarantees assured returns, and you also get attractive interest rates for your deposit amount. A regular fixed deposit is fully taxable, but with a tax-saving FD, you can claim the FD in your Income Tax (IT) and gain exemptions up to Rs. 1.5 lakhs per annum. A Fixed Deposit has many other features that can help you achieve your financial goals.

With a Shriram Fixed Deposit, you get attractive interest rates of up to 8.75% per annum, which includes a bonus of 0.50% interest for senior citizens. The interest you earn on an FD is fully taxable. The Tax Deducted at Source (TDS) on an FD is determined per the tax slab defined by the government.

What is a TDS?

The Government of India established the TDS idea to collect tax from the revenue source. Tax Deducted at Source causes a financial institution to deduct tax on the money before transferring the amount to the investor. A bank or Non-Banking Financial Company (NBFC) will deposit the tax they have withheld into the Central Government's account. However, if the investor falls below the minimum taxable limit, no TDS will be charged on their Fixed Deposit.

To stop financial institutions and banks from charging TDS on your deposit, you can list the interest from your fixed deposit as "income from other sources" when filing your IT returns. You must also submit a few other documents to be exempted from taxes.

What is a Tax-Saving Fixed Deposit?

A tax-saving FD is a 5-year deposit that an investor can claim against taxes according to Section 80C of the IT Act, 1961. While investing in a tax-saving FD, you cannot withdraw any funds prematurely or close your deposit. The principal and interest amount of the deposit will be transferred to your linked savings account upon maturity. You can choose a standard non-cumulative fixed deposit if you need an interest payout at regular intervals.

While a tax-saving deposit can help you save on taxes, you must remember that an FD's interest is still taxable. A tax-saving FD is a great investment option and can help your finances grow faster than ever. You can use an Fd calculator to determine this interest.

How is TDS calculated on a Fixed Deposit?

Calculating TDS on an FD is convenient once you understand deductions. The easy way is to add the interest earned from an FD to your total income, and the tax to be charged will be according to your tax slab. When you register the interest from an FD, the Income Tax Department will adjust the TDS accordingly. Here is a detailed explanation of how TDS charges apply to an FD:

• When TDS gets deducted at 20%:

If your interest income from all your fixed deposits is more than Rs. 10,000 in a year, you will be charged TDS. If you do not have your PAN Card registered with the bank or NBFC, they will deduct 20% TDS.

• When TDS gets deducted at 10%:

If you have registered your PAN Card and the interest income from all your FDs exceeds Rs. 10,000, you will be charged only 10% TDS on your fixed deposit. Senior citizens can earn FD interest up to Rs. 50,000 without tax.

• When no TDS gets deducted:

The financial institution cannot deduct any TDS if your total interest income from all fixed deposits with a bank or NBFC is less than Rs. 10,000.

Ways to Reduce TDS on a Fixed Deposit

• If your total income in a year is below Rs. 2.5 lakh, you can submit form 15G or 15H. These forms ensure that no TDS gets deducted since the income does not fall under the taxable slab.
• To avoid TDS charges, you can open multiple fixed deposit accounts in different banks or NBFCs with smaller amounts. Since TDS is calculated against the total income of an individual, you can open various FDs in the names of your family members or children to avoid TDS charges.
• You can invest at the right time of the year. If you make an FD closer to the end of a financial year, TDS will be distributed in two years. This will cause the interest calculation for a financial year to fall below the minimum taxable limit. In that case, no TDS will get deducted.
• You can submit forms 15G or 15H if the interest earned on your FD is below the taxable limit. The form must be submitted before the end of a financial year, ensuring the bank does not deduct TDS on the deposit.

Conclusion

-Registering your PAN Card would be wise to avoid extra TDS charges on your fixed deposit interest.

-TDS is only chargeable if you earn more than Rs. 10,000 in interest income from your FD. You will not have to pay tax on the interest if it is below this limit.

-If applicable, the bank or an NBFC will deduct the TDS from your deposit, and when you file it with your income tax, the IT department will adjust it accordingly.

-The interest from a fixed deposit will be listed under "income from other sources" in your IT filings.

Key Highlights:

• A tax-saving fixed deposit can help you claim exemptions of up to Rs. 1.5 lakh per annum.
• TDS can be reduced or avoided if you create deposits with smaller investments in the names of your family members.
• You can submit forms 15G or 15H if your income falls under the taxable limit. This form ensures the bank does not deduct TDS on your fixed deposit.
• If your PAN Card is registered with the bank or NBFC, you will be changed to only 10% TDS on your FD interest.