How is TDS on fixed deposit calculated

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Fixed deposit is one of the most preferred investment options that enables investors to earn assured returns on their deposit, over a specific tenor. However, the interest income you earn from a fixed deposit is fully taxable. If your total interest earnings from fixed deposit investments exceed the minimum threshold amount, your financier will deduct TDS (Tax Deductible At Source) as per the Income Tax Act, 1961.

TDS rates are applicable for different customers

  1. For Indian resident customers: As per announcements made by the Finance Minister, the TDS on interest earned from fixed deposits for the financial year 2020-21, shall now be deducted at 7.5% if the interest income exceeds Rs. 5,000 during the financial year, with effect from May 14, 2020. However, this deduction is not applicable to those depositors who have not submitted their PAN.
  2. For non-resident Indian customers: As per section 195 of the Income Tax Act (1961), if you are an NRI investor, TDS on interest earned from fixed deposits shall be deducted @ 30% plus applicable surcharge and cess.
  3. TDS rate if PAN details are not provided: If your PAN details are not shared with your financier, then the TDS deducted is:
  • 20% if you are an Indian resident
  • 30% plus applicable surcharge and cess if you are a non-resident Indian customer

How to apply for TDS waiver?

If you are an Indian resident customer, you can apply for a TDS waiver on interest earned from fixed deposit by submitting Form 15G or Form 15H (applicable as per your age), to your financier at the beginning of the financial year.

These forms include a self-declaration stating that tax on your (estimated) total income during the financial year is NIL. Therefore, no TDS will be deducted on interest earned from FD as your total taxable income is NIL. Also, if your total income is below the minimum income tax slab, you can claim a refund of the TDS deducted.

How can I save TDS on FD?

You can save TDS on FD in the following ways:

  • If you fall under the non-taxable bracket, you can claim the TDS on FD interest as refund while filing your Income tax returns.
  • TDS on FD interest can also be saved by creating multiple company FDs which will earn interest under Rs. 5,000 in total across a single NBFC branch.
  • You can submit Form 15G/H to avoid TDS deduction if you are earning less than the lowest income tax bracket.

What is the exemption limit for TDS?

  • For Company FDs, TDS deduction limit is Rs. 5,000 in a financial year
  • Total taxable income less than Rs. 2,50,000 does not require TDS deposit
  • TDS deduction limit for senior citizens is also Rs. 5,000 in case of Company FDs.

Is interest on FD exempt from tax?

Interest on FD is fully taxable in India but can be claimed as TDS deduction under relevant sections of Income Tax Act

What is the TDS rate on FD interest?

  • For all resident Indian investors, if the interest income earned on company FD exceeds Rs. 5000, the TDS rate is 10% (in case PAN details are provided to the financier). If PAN details are not provided to the financier, TDS deduction on FD interest is chargeable at 20%.
  • For Non-Resident Indian investors, TDS payment needs to be made at the rate of 30% plus applicable surcharge and cess.

How TDS on fixed deposit calculated?

If you are a resident Indian citizen and your interest earnings on company fixed deposit exceed Rs. 5000 in a financial year, 7.5% of the interest amount will be deducted as TDS. For example, if you earn Rs. 20,000 as interest on FD, the TDS deducted will be Rs. 1,500.

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