One of India’s most popular investment instruments is Fixed Deposits, which yield returns in the form of principal and interest payouts. Fixed Deposits are considered to be one of the safest investment instruments in India. However, most investors are unaware of the information related to TDS on FD interest earned. Knowing the TDS rules regarding Fixed Deposit interest can help you plan your finances effectively and save you from any surprises during the filing season. This article covers the rules of TDS in India for FD interest, including exemptions, rates, and important forms.
TDS on Fixed Deposit Interest: An Overview
In India, the TDS on FD interest varies depending on the institution providing the deposit facility and the investor’s age. The tax deduction thresholds are different for banks and Non-Banking Financial Companies (NBFCs). Understanding these aspects allows investors to plan their finances better.
TDS on Bank Fixed Deposits
For Fixed Deposits with banks, the TDS is applicable if the total interest earned exceeds Rs. 40,000 for citizens below 60. The exemption limit for senior citizens is higher, set at Rs. 50,000 per financial year. The TDS rate on FD interest for both age groups is 10%, provided that PAN details have been submitted to the bank. In the absence of PAN, the TDS is 20%.
If your interest income from bank FDs surpasses these thresholds, the bank will deduct 10% of the excess amount as TDS before crediting the interest to your account. For instance, if a non-senior citizen earns Rs. 50,000 in interest from a Fixed Deposit, TDS will only apply to Rs. 10,000 (the amount exceeding the threshold of Rs. 40,000). Therefore, Rs. 1,000 will be deducted as TDS.
For investors looking to invest in reliable institutions for their Fixed Deposit needs, major banks like ICICI Bank are the ideal choice. These banks offer attractive interest rates while ensuring TDS deductions and transparency regarding tax implications.
TDS on Non-Banking Financial Companies (NBFCs) FDs
The rules for TDS on Fixed Deposits for NBFCs differ slightly. The threshold limit for TDS on FD interest for NBFCs is significantly lower, at Rs. 5,000. If an investor earns more than Rs. 5,000 in interest from an NBFC FD, the TDS will be deducted at a rate of 10%.
Moreover, if you have not provided your PAN details, the TDS rate doubles to 20%. This emphasises the importance of sharing your PAN details to avoid higher tax deductions.
TDS Calculation and Filing
When calculating TDS on Fixed Deposit interest payouts, you need to include the total interest earned from all your FDs in a financial year in your overall income. If the bank does not deduct TDS, you must declare this interest income in your Income Tax Return (ITR) under the “Income from Other Sources” section.
If TDS has already been deducted, you can view the details on Form 26AS, which summarises the TDS deducted against your earnings. The TDS amount will be adjusted against your final tax liability when you file your ITR.
TDS Exemptions and Forms
Understanding the exemptions and forms required for TDS on Fixed Deposits is crucial for maximising the tax benefit.
Exemption Limits for TDS Deduction on Fixed Deposits
You have to pay TDS only when the interest earned from your Fixed Deposit account is more than Rs. 40,000. For senior citizens, the exemption limit is up to Rs. 50,000. In case your entire tax liability is not more than Rs. 2.5 Lakh per year, then there will be no TDS deduction. Thus, people with lower incomes are more likely to save.
Forms 15G and 15H
Form 15G and Form 15H are documents submitted to avoid TDS on the interest earned from FDs. Form 15G is valid for citizens under 60 years old, and Form 15H is specifically for senior citizens. These forms state that the individual’s total income is less than the minimum taxation slab criteria for the financial year.
Submitting these forms at the beginning of the financial year ensures that TDS will not be deducted, and one gets the total interest earnings from Fixed Deposits.
Implications of TDS for Different Kinds of Investors
Indians living in India pay less TDS on the interest of a Fixed Deposit than Non-Resident Indians. TDS on the interest of FD for an Indian resident is 10% when PAN details are provided, while for an NRI, the rates are 30% up, as per the relevant tax laws applied.
TDS on FD Interest of Senior Citizen
For senior citizens above 60 years of age, there is an enhanced exemption of Rs. 50,000 of Fixed Deposit interest. This is to consider their financial requirements, allowing them to avail of more tax exemptions. The benefit one can get through Fixed Deposit Accounts in this age group can be up to Rs. 50,000, as per the provisions of the Income Tax Act in section 80 TTB without TDS.
This advantage is highly beneficial for senior citizens, as they rely on Fixed Deposits as one of their main sources of income. This allows them to maximise their returns with minimal tax liability.
TDS on FD Interest for Non-Senior Citizens
For citizens aged below 60 years, TDS on interest income from a Fixed Deposit is charged at 10% (when PAN is provided) as long as the interest income for the financial year is over Rs. 40,000. If the total income from FD interest is below the threshold exemption of Rs. 2.5 lakh for a year, then individuals can present Form 15G to the bank to avoid having TDS deducted.
If TDS is deducted and the overall income is below the exemption threshold, individuals can claim a refund while filing their annual returns. Maintaining a record of all the interest earned is imperative to ensure accurate reporting.
Conclusion
Understanding TDS on FD interest can play a huge role in your investment strategy. By understanding the thresholds, applicable rates, and procedures for filing the return, you can make an informed choice to maximise returns while complying with tax regulations. Always stay updated on the latest financial rules and consult experts when necessary to navigate the complexities of Fixed Deposits and taxation.
