TDS on FD

TDS on FD stands for Tax Deducted at Source on fixed deposit interest. When the interest you earn on your fixed deposits in a financial year exceeds a set limit, the bank is required to deduct tax at the source before paying you. Understanding TDS on FD helps you plan your taxes efficiently and avoid surprises during filing.

What Is TDS on FD?

Under Section 194A of the Income Tax Act, banks must deduct TDS on FD interest when total interest in a financial year exceeds:

– Rs 40,000 for regular account holders
– Rs 50,000 for senior citizens (aged 60 or above)

The TDS rate is 10% if you have submitted your PAN to the bank. If PAN is not on record, the bank deducts TDS at 20%.

How TDS on FD Is Calculated

TDS applies on the total FD interest across all FDs in the same bank in a financial year, not per FD individually. For example, if you have three FDs in the same bank earning Rs 15,000 each, total interest is Rs 45,000, which exceeds Rs 40,000, so TDS applies on the full Rs 45,000.

**Example:**
Interest earned = Rs 45,000
TDS at 10% = Rs 4,500
Amount received = Rs 40,500

How to Avoid or Reduce TDS on FD

1. **Submit Form 15G or 15H** – if your total income is below the taxable limit, submit Form 15G (for individuals below 60) or Form 15H (for senior citizens) at the beginning of the financial year. The bank will not deduct TDS on your FDs.
2. **Spread FDs across banks** – TDS is calculated per bank. If you split FDs across multiple banks, each bank applies the threshold independently.
3. **Link PAN** – ensures TDS is deducted at 10% and not the higher 20% rate.

Is TDS the Final Tax on FD Interest?

No. TDS is an advance payment of tax. FD interest is fully taxable under income from other sources, at your applicable slab rate. If your slab rate is 20% and the bank deducted 10% TDS, you must pay the remaining 10% while filing your return. If your income is below the taxable limit and TDS was deducted, you can claim a full refund.

Practical Example

Suresh earns Rs 60,000 in FD interest from SBI in FY 2024-25. His PAN is registered with the bank. SBI deducts TDS at 10% = Rs 6,000. Suresh is in the 20% tax slab, so he pays an additional Rs 6,000 while filing his return. His total tax on the FD interest is Rs 12,000. If he had submitted Form 15G and his total income was below Rs 2.5 lakh, the bank would not have deducted TDS at all.

Key Takeaways

– TDS on FD is deducted at 10% (or 20% without PAN) when interest exceeds Rs 40,000 (Rs 50,000 for seniors) per bank per year
– TDS is not the final tax; FD interest is taxed at your income slab rate
– Submit Form 15G or 15H at the start of the year if your income is below the taxable limit
– Excess TDS deducted can be claimed as a refund in your income tax return
– Spreading FDs across multiple banks can help manage TDS thresholds