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All You Need To Know About TDS On Fixed Deposit Earnings: TDS Calculation And Claiming Refund

  • Highlights
  • TDS is aimed at collecting tax from the source of the income

  • It is applicable on interest earned on FDs as well as other income sources

  • Save TDS with multi-deposit facility by Bajaj Finance

  • Submit Form 15G/H if your income is below minimum tax slab

Tax Deducted at Source (TDS) was introduced as a means to collect tax from the income source. The Income Tax Department of the Government of India states that a person (deductor) liable to make a payment of a specified nature to any other person (deductee), shall deduct tax at source and remit it to the Central Government.

The deductee, whose income has been taxed is entitled to get credit of the amount deducted by submitting the Form 26AS or TDS certificate issued by the deductor. TDS is applicable for interest earned on fixed deposits. Here is all you need to know about FD investments and the tax applicable on your interest earnings.

Bajaj Finserv Fixed Deposit

How is TDS on Fixed Deposit Interest Calculated?

Fixed deposits are great investment options across all age groups. They offer assured returns at low risk. But before you invest in FDs It’s important that you understand the tax implications on the interest you are likely to earn.

Let us understand how TDS is charged on fixed deposits. Banks, Non-Banks (NBFCs), and other lenders are liable to deduct a certain percentage of your interest earnings as TDS.

For banks, this number is 10% on the interest earned, if the interest income for the year exceeds Rs. 10,000. This limit has been raised to Rs 40,000 for regular citizens and Rs 50,000 for senior citizens from F.Y 2019- 20. However, this limit is reduced to Rs.5,000 in the case of a company FD.

But there is a catch, if the interest you earn on FDs exceeds the amount mentioned above, and you have not shared your PAN details with your bank or NBFC, the TDS to be deducted doubles to 20% of the interest earned. However, in both cases, you have the option to submit your Form 15G or Form 15H, if you wish that tax should not be deducted at source. Here is how:

Form 15G and 15H

Forms 15G or Form 15H are a declaration that your income for the particular financial year is below the minimum tax slab. Senior citizens are exempted from paying TDS on interest earned on fixed deposits if their total income from investments does not exceed Rs 2.5 lakhs. They need to provide Form 15H. If the TDS has been applied and your total income is below the minimum tax slab, then you can claim TDS refund on fixed deposit income while tax filing annual IT returns. Besides these benefits, there are many benefits of form 15G and 15H, which you can see here.

Additional Read: Premature withdrawal of fixed deposits

Invest in multiple FDs across different financiers

Another way to save on TDS is to spread your investment across lenders. For instance, if you have a Rs.1 lakh investment in a company FD with 10% interest rate, you get a return of Rs.10,000, which is above the current threshold of Rs.5,000. The company is mandated to deduct 10% tax at source. 

However, if you spread the investment of Rs.1 lakh equally into two fixed deposits across two different companies, you would generate interest of Rs.5,000 each. Since each company is only paying you an interest amount equal to the maximum limit, there will be no tax deducted by either company.

Financial Planning Tip: How you can offset the effect of TDS deduction with high-interest income

Instead of only focusing on the TDS deduction, also look at the returns you are earning from the FD. With a lower return of bank FDs it does not make sense to pay almost 30% (assuming you fall under 30% tax slab) of your interest earning in taxes if your interest earning goes beyond these limits and you earn above the prescribed limits. Go for high-yielding fixed deposits like Bajaj Finance FD which offers 8.35% for a 5-year FD. This is easily 1-2% higher than bank FDs. For a senior citizen this rate is 7.85%.

You will earn much more post TDS deduction and income tax deduction on your Bajaj Finance FD when compared to a bank FD.

To help make sense of your maturity amount and the interest income you are likely to earn on your FD, you can use the online fixed deposit calculator. It is a simple tool that helps you calculate the amount that you will receive at the time of maturity of your deposit. It also helps you calculate and compare the interest receivable by changing the deposit amount, tenor and interest payment frequency.

Time your FD investments differently

You can work out your investments in a way that the interest earned for the year does not exceed Rs. 40,000 (or Rs. 5,000 for senior citizens) in the same financial year. For instance, you can start a 12-month investment in October instead of April. Since the financial year closes on 31stMarch, the interest on your FD will be split across two financial years and hence, tax deduction avoided.

Use these simple ways to minimize your TDS and make the most of fixed deposit investments. Bajaj Finance offers FDs high stability, flexible tenors, and returns of up to 8.35%.

Financial Planning Tip: How you can ensure your annual interest income from FD doesn’t cross the TDS exemption limit

You can look at features such as Multi-Deposit Facility with Bajaj Finance FD which offers a smart way to keep tab on FD income to ensure it does not breach the yearly upper limit for TDS exemption. With this feature, you can invest using a single cheque and split the lumpsum amount across different FDs with different tenors. This will help you plan better on timings of maturity so as to avoid TDS deduction.

Bajaj Finance FD gives wide flexibility on the range of tenors from 12 months to 60 months which you can use to split and plan your fixed deposits. There are short-term and long-term FDs which will help you plan for near term goals or goals with a timeline of 15 years or more.

You can also use the auto-renewal feature to ensure you do not miss out on the additional interest rate benefit due to lack of time.

Additional Read: Tax Saving Investments Options

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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Benefits of Form 15G/15H For Fixed Deposits