When you earn interest from a Fixed Deposit (FD), Tax Deducted at Source (TDS) plays a vital role in ensuring that tax is collected on that income. Banks deduct TDS on FD interest once it exceeds a certain limit, making tax compliance simpler for taxpayers. Here’s a breakdown of how it works:
Read More:- 7th Pay Commission: What DA hike can central government employees expect in 2025, and when?
How TDS is Calculated on FD Interest
FD interest is considered taxable income and is added to your total earnings. It is taxed based on your income tax slab.
TDS Thresholds
- For Resident Individuals: TDS applies if total FD interest exceeds ₹40,000 in a financial year.
- For Senior Citizens (60 years or older): The threshold is ₹50,000.
TDS Rates
- 10%: If you have provided your PAN to the bank.
- 20%: If you have not provided your PAN.
When TDS is Not Deducted
- Below the Threshold: If the total interest earned is under ₹40,000 (or ₹50,000 for seniors).
- Form 15G/15H: Submit these forms if your total income is below the taxable limit, ensuring no TDS is deducted.
- Special Considerations
- Cumulative FDs: Even if you don’t withdraw the interest annually, it is still taxed on accrual, and TDS will be deducted.
- Taxable Income: Despite TDS, the FD interest is added to your total income and taxed accordingly.
- Refund Claims: If more TDS is deducted than necessary, you can claim a refund when filing your Income Tax Return (ITR).
How to Minimise Excess TDS Deductions
- Provide PAN: This ensures TDS is deducted at the lower rate of 10%.
- Submit Form 15G/15H: Avoid TDS if your income is below the taxable limit.
- Track Interest Across Banks: TDS is deducted per bank, so keep an eye on the interest you earn across multiple banks.
TDS on FD interest ensures timely tax collection and simplifies the process for taxpayers. By understanding the thresholds and submitting the right forms, you can manage your finances efficiently and minimize unnecessary deductions.
