TDS on Fixed Deposit
Last Updated : Jan. 18, 2023, 4:42 p.m.
TDS on Fixed Deposit stands for Tax Deducted at Source on Fixed Deposits. It is a system of taxation wherein the tax is deducted at the time of payment of income to the recipient. In other words, the tax is deducted from the source itself. This system applies to all types of income, including interest earned from fixed deposits. As per the Income Tax Act of 1961, any interest earned on fixed deposits is taxable, and the bank or financial institution is liable to deduct TDS at the rate of 10% on the interest earned. The TDS deducted is then deposited with the government. The TDS on Fixed Deposit deducted is then credited to the taxpayer’s account in the form of a tax credit. The taxpayer can then claim the tax credit while filing their income tax returns.
TDS on FD stands for Tax Deducted at Source on Fixed Deposits. It is a tax that is deducted from the interest earned on fixed deposits. This tax applies to all fixed deposits held by individuals, Hindu Undivided Families (HUFs), and Non-Resident Indians (NRIs). The amount of tax deducted depends on the amount of interest earned and the tax slab of the depositor.
The rate of TDS on Fixed Deposits is 10% for individuals and HUFs and 30% for NRIs. The TDS on Fixed Deposit is applicable only if the interest earned is more than Rs. 10,000 in a financial year. The TDS amount is deducted by the bank at the time of interest payment. The depositor can claim a refund of the TDS amount if the total tax payable on the income is less than the amount of TDS deducted.
The depositor is required to submit Form 15G/15H to the bank to avoid a TDS deduction. Form 15G is to be submitted by individuals and HUFs, and Form 15H is to be submitted by senior citizens. The depositor is also required to submit a copy of the PAN card to the bank.
To claim the refund of TDS on the Fixed Deposit deducted, the depositor is required to file the income tax return and submit the TDS certificate (Form 16A) issued by the bank. The TDS certificate contains the details of the TDS on the Fixed Deposit deducted and the amount of tax refundable. The refund of TDS on Fixed Deposit is credited to the bank account of the depositor.
What is a Fixed Deposit?
A fixed deposit (FD) is a financial product offered by banks or NBFCs that, up until the specified maturity date, pays investors more interest than a typical savings account. It may or may not call for the creation of a different account. The fixed deposit requires the investor to deposit a lump sum of money for a specific period of time ranging from 7 days to 10 years. During this period, the investor cannot withdraw the money or use it for any other purpose. The investor will receive the principal amount along with interest earned at the end of the maturity period.
Fixed deposits are considered to be one of the safest and most secure investments as they are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The interest rate offered on fixed deposits depends on the tenure and the amount of the deposit. Generally, the longer the tenure and the higher the amount, the higher the interest rate. Fixed deposits are also tax-efficient as the interest earned is fully taxable.
What is TDS?
TDS stands for Tax Deducted at Source. It is a system of taxation in India where the payer (deductor) is required to deduct a certain percentage of tax before making a payment to the recipient (deducted). The tax so deducted is paid to the government by the deductor. The TDS system applies to all types of income, such as salary, commission, rent, professional fees, interest, etc. The amount of tax to be deducted depends on the type of income and the applicable tax rate. The deductor is also required to file a quarterly return to the Income Tax Department, which contains details of the tax deducted and paid to the government. The deductee is then required to file an income tax return to claim credit for the tax deducted.
How do you save TDS on a Fixed Deposit?
The following pointers will help you save TDS:
- Invest in Tax Saving Fixed Deposits: One of the most popular ways to save tax on FDs is to invest in Tax Saving Fixed Deposits (also known as Tax Saving FDs). These are special FDs offered by banks and post offices that come with a lock-in period of 5 years. These FDs offer tax deductions under Section 80C of the Income Tax Act of 1961.
- Invest in Senior Citizen FDs: Senior citizens can avail of additional tax benefits by investing in Senior Citizen FDs. These FDs offer higher interest rates than regular FDs and also provide tax deductions under Section 80 TTB of the Income Tax Act of 1961.
- Invest in Corporate FDs: Corporate FDs are another way to save tax on FDs. These FDs offer higher interest rates than regular FDs and also provide tax deductions under Section 80C of the Income Tax Act of 1961.
- Invest in Tax-Free Bonds: Tax-free bonds are another way to save tax on FDs. These bonds are issued by the government and provide tax-free returns. The interest earned from these bonds is exempt from tax under Section 10(15)(iv) of the Income Tax Act, 1961.
- Invest in Tax-Free Mutual Funds: Tax-free mutual funds are another way to save tax on FDs. These funds invest in government securities and provide tax-free returns. The returns earned from these funds are exempt from tax under Section 10(23D) of the Income Tax Act, 1961.
Conclusion
TDS on Fixed Deposit is a great way to save tax and earn a higher return on your investments. It is important to remember that TDS is applicable only to the interest earned from FDs and not to the principal amount. It is also important to note that the TDS rate applicable to FDs is 10%, and the threshold limit is Rs. 40,000. Lastly, it is important to remember to submit your PAN details to the bank to avoid a higher TDS rate of 20%.