TDS on FD Interest - How to Avail TDS Waiver on FD?
Fixed deposits are a popular way for individuals to save money. But when you earn interest on FD, you have to deal with taxes, which means a portion of that interest goes to the government. Interest on FD is taxable under the head of “Income from Other Sources”. Additionally, FD interest is taxable at the applicable slab rate while filing your income tax return. Hence, if the total income of the taxpayer is more than Rs.10 lakhs then they fall under the 30% tax slab and if total income is less than Rs.5 lakhs then you are not liable to pay any tax and can get refund of TDS on FD interest by filing your Income tax return.
TDS on FD Interest
FD Interest is subject to TDS deduction under section 194A. When you earn interest on your FD, the bank or post office may deduct 10% of it as TDS if the interest exceeds Rs 40,000 (or Rs 50,000 for senior citizens). If you do not provide your PAN, they will deduct 20% as TDS on FD interest. For the purpose of TDS deduction, FD interest earned from all the branches during the year must be considered.
|
Type of Fixed deposit |
Rate of TDS on FD Interest |
|
Fixed deposit (Resident) |
10% |
|
Fixed deposit without PAN card (Resident) |
20% |
|
NRO Fixed deposit |
30% |
|
NRE Fixed deposit |
Tax free |
|
FCNR Fixed deposit |
Tax free |
Calculating Tax on FD Interest
To calculate how much tax you owe on FD interest, you need to:
- Add your FD interest to your income under the head ‘Income From Other Sources’
- Add remaining incomes under each head of income.
- Deduct the exemptions, allowance and deductions and
- Calculate the tax on your total income as per applicable slab rates
For Instance, Mr. A earns the below income during the financial year 2022-2023
Salary – Rs.810000
FD Interest – Rs.60000
Investment in Tax Saving FD – Rs.120000
The calculation of tax will be:
|
Particulars |
Amounts (Rs.) |
|
Income Under the Head Salaries |
810000 |
|
Income Under the Head Other Sources |
60000 |
|
Total Income
|
870000 |
|
Less: Deductions u/s 80C |
(120000) |
|
Net Taxable income |
750000 |
|
Tax Payable |
|
|
Up to Rs.2.5 lakh |
0 |
|
Rs.2.5 – Rs.5 lakh Taxable at 5% |
12500 |
|
Rs.5 – Rs.7.5 lakh Taxable at 20% |
50000 |
|
Total Tax Payable |
62500 |
Deduction for FD Investment
A tax deduction is available for the entire amount that a taxpayer puts in a tax-saving fixed deposit plan. Section 80C permits a tax deduction of up to Rs 1.5 lakh. With a bank or post office, you can make an investment in a tax-saving FD.
Avoiding TDS with Form 15G and 15H
Many taxpayers do not have a taxable income, However, Payer have to deduct TD on FD interest due to total FD interest exceeding the limit (Rs.40000 or Rs.50000). In such case taxpayers is required to file income tax return to claim refund of TDS on FD interest.
If you don't actually owe tax because your income is below the taxable limit, you can avoid TDS by submitting Form 15G (for individuals) or Form 15H (for senior citizens). These forms declare that you don't have a taxable income.
Deduction for Interest on saving accounts (not FD)
The tax laws allow certain deductions for interest earned on saving accounts:
- Regular individuals and Hindu Undivided Families (HUFs) can claim a deduction of up to Rs.10000 under section 80TTA.
- Senior citizens can claim a deduction of up to Rs.50000 under section 80TTB. If the saving account interest exceeds Rs.50000, the extra amount is taxable.
FAQs
Q: Is it necessary to show FD interest in ITR?
A: Yes, it's mandatory to report the interest from your fixed deposit in your income tax return. The tax department can cross-check this information with your TDS returns and Form 26AS.
Q: What happens if I don’t show FD interest in ITR?
A: If you fail to report all your income sources, you may face penalties for concealing facts. The tax department may issue a notice if they find discrepancies in your records and may charge interest and penalties.
Q: Is fixed deposit tax free?
A: No, the money you earn as interest from a fixed deposit is not tax-free. You need to pay income tax on the interest you earn, and the tax rate depends on your total income.
Q: Can I receive FD interest without TDS if my income is below the taxable limit?
A: Yes, you can avoid TDS on your fixed deposit interest if your income is below the taxable limit. To do this, you need to submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens), declaring that your total income doesn't incur any tax.
Q: If my total earnings for the year are below the taxable limit and I earn fixed deposit interest, do I have to pay tax?
A: No, you won't have to pay tax if your total earnings are below the taxable threshold. However, TDS may still be deducted if your FD interest exceeds Rs.40000 (or Rs.50000 for senior citizens). To prevent TDS, you can fill out Form 15G or Form 15H as applicable.
Q: When do banks or post offices deduct TDS on fixed deposit interest?
A: Banks and post offices deduct TDS when they pay you the interest on your fixed deposit or when the interest accrues, whichever happens earlier.
