An alternative for low-risk investing is a fixed deposit. You can earn interest on the money, which is locked in for a specific period. This interest from FDs is entirely taxed. Banks and lenders subtract a 10% tax from the amount of interest that is paid. The lenders charge a flat rate for this, which is known as tax deducted at the source. Your overall tax obligation under the Income Tax Act of 1961 includes this TDS. Learn more about TDS on FD interest rate its calculation process and more
- You can request a reimbursement from the Income Tax Department in your income tax return if the bank has deducted TDS but you are only responsible for a lower rate of tax.
- The additional tax over the TDS imposed as self-assessment tax must be paid if you fall under the higher income tax slab rates of 20 or 30 percent.
- When the interest is due on the deposit, the banks determine TDS on FD interest rate; they do not do so when they pay the interest. As a result, the tax on interest income should be paid each year rather than when the FD matures. Use the FD Calculator to determine the maturity amount of your investment.
What is TDS?
When a certain payment, such as a salary, commission, rent, interest payment, or professional fee, is made, a certain amount, known as TDS or Tax Deducted at Source, is deducted. The payer withholds tax at the point of origin, whereas the payer of payment or income is responsible for paying tax. Because the tax will be collected when a payment is made, it reduces tax evasion.
Different Types of TDS
Some income sources that can be qualified as TDS on FD interest rate :
- Payment of rent
- Deemed Dividend
- Brokerage or Commission
- Interest in securities
- Bank Interest
- Insurance Commission
- Contractor payments
- Amount under LIC
- Commission payments
- Transfer of immovable property
- Interest apart from interest on securities
- Compensation for a company’s director, etc.
- Payment for obtaining real estate that is not movable
- Winning at games like cards, lotteries, crossword puzzles, etc.
TDS on fixed deposit interest rates are the same as the individual tax slab rates that apply to salaries. If your income is less than Rs. 2.5 lakh and you are younger than 60, you would have no TDS obligation. Earners who make between Rs. 2.5 lakh and Rs. 5 lakh will be liable to TDS on FD interest rate at a rate of 5 percent, while those who make between Rs. 5 lakh and Rs. 10 lakh and those who make more than Rs. 10 lakh will be subject to a TDS on saving bank interest rate of 20 percent and 30 percent, respectively.
For annual incomes up to Rs. 2.5 lakh, there will be no TDS due under the new tax system. The TDS on FD interest rate obligation is 5% in cases where the annual income is between Rs. 2.5 lakh and Rs. 5 lakh. The TDS duty is 10% if the annual income is between Rs. 5 lakh and Rs. 7.5 lakh. The TDS obligation is 15% if the yearly income is between Rs. 7.5 lakh and Rs. 10 lakh. The TDS on fixed deposit interest is 20% if the annual income is between Rs. 10 lakh and Rs. 12.5 lakh. The TDS duty is 25% if the annual income is between Rs.12.5 lakh and Rs.15 lakh. The TDS duty is 30% if the annual income exceeds Rs. 15 lakh.
When is TDS Deducted?
- TDS will be taken out at the time of any payments you make that are listed as payments under the Income Tax Act. If you’re a single person or a Hindu Undivided Family (HUF), however, no TDS will be taken from your payment and your books won’t need to be audited.
- Even if your records are not subject to a tax audit, a TDS of 5% will be taken out when an individual or HUF member pays rent and the amount owed exceeds Rs. 50,000. If you are eligible to have TDS deducted at a rate of 5%, you are not required to apply for a Tax Deduction Account Number (TAN).
- Depending on the applicable income tax slab rates, your employer will take TDS from your pay if you are a working professional. TDS will be withheld at a rate of 10% by the bank where you have a working account. If they do not have your PAN information, TDS at a rate of 20% will be taken off. The Income Tax Act sets the TDS on fixed deposit interest rates for the majority of payments, and the payer deducts TDS at the appropriate rates.
- If you provide your employer with proof of your investments and your entire taxable income is less than the total taxable level, you won’t be forced to pay any tax. No TDS will be taken out in this instance. If the total taxable income is less than the total taxable limit, you can also submit Forms 15G and 15H to the bank. In this instance, the bank won’t collect any TDS from your interest income.
- If the bank deducted the TDS because you forgot to give your employer the investment proof, you can file a return and request a refund as long as the complete total taxable income is under the total taxable limit.
TDS Rules for FD Interest
Fixed deposit interest is taxable and subject to various IT slabs. If there is no tax deduction but interest is still deducted, a refund might be requested. The bank deducts the TDS that applies to the interest at a rate of 10%.
You must pay taxes on the interest you receive from fixed deposits. According to the IT slabs of each individual earning interest, the tax on FDs is computed and assessed. For different people, there are different tax slabs. Tax on FDs is determined by the amount of income a specific taxpayer received in a given year. The income tax rates are divided into slabs that vary from 0% to 30%.
TDS on FD Interest for FY 2022-23 (AY 2023-24)
The table given below includes different types of FD along with TDS rates.
|Type of FD||TDS|
|Resident Indian FD Account||10%|
|Non-Resident Ordinary FD Account||30%|
|Non-Resident External FD Account||0%|
|Foreign Currency Non-Resident||0%|
|Time Deposit (Post Office)||0%|
Did you Know?
If the interest amount reaches 40,000, banks deduct tax at source (TDS) before crediting the interest to your account. Except for senior citizens, it applies to all investors. Senior citizens are allowed up to 50,000.
How is TDS on FD Interest Calculated?
If the amount being paid or has already been paid exceeds Rs. 10,000, TDS applicable on fixed deposit interest is deducted by the bank at a rate of 10%. The cap is set at Rs. 10,000 per customer, per bank branch. TDS won’t be taken out of an individual’s interest payments if they total more than Rs 10,000 from many branches but are less than Rs 10,000 from each branch individually. Only when an individual branch pays more than Rs. 10,000 in interest does a branch deduct TDS.
TDS on fixed deposit interest refers to the bank’s 10 percent TDS deduction at the time the interest is due. This specific sum will be put in your account with the government. The total tax that you have paid will include this sum as well.
If the TDS deducted is less than your tax obligation, you must pay the difference. If the TDS deducted exceeds your tax burden, you may be eligible for a TDS refund. If the interest due from the bank is more than Rs. 10,000 and the person has not provided a Permanent Account Number, TDS of 20% would be taken out in accordance with Section 206AA. This action is being done to encourage everyone to submit their PAN information.
Word to Remember
FD interest – An FD’s interest earnings are wholly taxable. According to your income bracket and subsequent tax slab, interest from FDs is taxed. Banks and lenders withhold a tax at a flat rate of 10% when depositing this interest into your account. It’s known as tax deducted at source (TDS).
Many big banks in India provide fixed deposits (FDs), a well-liked low-risk investment option. It entails making a lump sum payment as well as beginning with a fixed monthly interest rate. FDs are popular among investors seeking secure long-term returns, but many are unaware that the interest they earn may be subject to taxation. Before paying the other party, banks deduct these taxes as Tax Deducted at Source, or TDS.
Fixed deposit interest is taxed at the rates applicable to your income bracket. If your tax bracket is the lowest, you pay less tax. But in addition to the tax that the bank has deducted or TDS that you must pay if you fall under the highest tax bracket.
If your income is below the taxable threshold, you may claim FD interest by submitting Form 15G. You can submit Form 15H if the applicant is a senior citizen.
When the total interest income from all fixed deposits surpasses Rs 40,000 in a fiscal year, banks or post offices deduct tax or TDS. For older folks, the cap is Rs 50,000.
When filing their income tax return, senior citizens can deduct up to Rs 50,000 in taxes from their FD interest income.