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All you need to know about TDS on fixed deposit earnings

  • 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

  • See the implications and see how much you are likely to lose to TDS

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.

Tax implications of fixed deposit investments

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. 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 not be deductedat 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. 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 a refund while tax filing Besides these benefits, there are many benefits of form 15G and 15H, which you can see here.

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.
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.

Documents required for Fixed Deposit investments

Time your FD investments differently

You can work out your investmentsin a way that the interest earned for the year does not exceed Rs.10,000 (or Rs.5,000) 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 7.85%.

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Benefits of Form 15G/15H For Fixed Deposits