Tax Deduction at source or TDS is a tax associated with the interest earned on the Fixed Deposit Account if it is in the taxable category. FD are an investment account that pays you interest for the amount deposited but most of the people do not know that the interest earned is taxable and are shown in the ITR Filed under the section of “Income from Other Sources”. Currently, banks charges 10% on the amount of interest earned.
Rules for TDS on Fixed Deposit
- TDS is applicable only if the amount of interest earned in a financial year exceeds Rs.10,000/-
- For Senior Citizen( over 60 years of age )the interest earned limit is Rs.50,000/- for a financial year
- 10% on the interest earned will be deducted if the amount exceeds the applicable limit
- If the deposited fails to provide the PAN details then 20% will be deducted from the interest earned.
- TDS will be deducted automatically from the final amount. You will be paid the balance after the TDS deduction.
- PAN of one of the account holder in case of TDS on the joint account will be treated with Tax deduction the other account holder will not be taxed.
Tax Savings Tips on FDs
- Invest in multiple FD Account so that the interest does not exceed Rs.10,000/- in the individual account.
- Invest in the middle of the financial year so that the interest earned is less than 10,000/-
- Submit the relevant form like 15G and 15H (if applicable) to keep the FD Account free from the TDS.
Form 15G and 15H to Save TDS on Fixed Deposits
Form 15G and 15H are the forms that prevent the banks from deducting the TDS on the interest earned. The 15G form is for the regular depositor below the age of 60 years and 15H is for the senior citizens. The following forms for the respective account holder will be submitted only if the interest earned is less than the limit of Rs.10,000/- and Rs.50,000/- for regular depositor and senior citizen respectively. You can submit the TDS on both online and offline methods.
What is TDS Certificate?
TDS Certificate is issued by the Bank where you have opened your FD. This certificate helps you with the claiming of the Tax credit or any refund for the Tax payments. If the deducter fails to issue the Tax Certificate within a specified date then a penalty will be leaved of Rs.100 per day for each delayed date.
Example of FD Account-
To understand the FD Account process let’s consider an example- A FD Account with Rs.2,00,000/- the amount is deposited for a tenure of 5 years. The interest earned is calculated on annual bases at 6.95%. The calculation of the Maturity amount is Rs. 2,79,855/- so the interest earned is Rs.79,855/- which turns out to be more than the limit of Rs.10,000/- per year. Therefore, the TDS on this amount is 10% of the interest earned which is Rs.7985.5/-. So the final amount you will receive will be Rs.2,71,869/-.
| Year | Opening Balance | Interest Earned | Closing Balance |
|---|---|---|---|
| 1 | 200000 | 13900 | 13900 |
| 2 | 2213900 | 14866 | 228766 |
| 3 | 228766 | 15899 | 244665 |
| 4 | 244665 | 17004 | 261669 |
| 5 | 261669 | 18186 | 279855 |
| Total Interest earned | 79855 | ||
| Final Amount | 279855 | ||
| After Tax Amount | 271869 | ||
