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TDS on FD

Understanding TDS on Fixed Deposit (FD) interest is crucial for investors. FDs are safe investments offering fixed returns, but the interest earned is taxable. Banks or financial institutions deduct TDS on interest exceeding Rs 40,000 for individuals and Rs 50,000 for seniors. The TDS rate is 10% with PAN and 20% without PAN. By knowing the rules and exemptions, investors can better manage their finances and tax liabilities.

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Term Insurance

Understanding TDS on FD Interest Income

TDS on FD
February 07, 2025

Table of Content

 

Understanding TDS on FD interest is important when choosing it as an investment vehicle. The Fixed Deposit (FD) is an investment instrument through which individuals can park their lump sum amounts for a fixed period. The rate of interest earned thereon is fixed and remains the same for the entire term. Thanks to these inbuilt features, FDs have been the traditional way of achieving inflation-beating returns. It has been the preferred mode of investment for risk-averse investors as it safeguards the principal amount and also allows an earning of a fixed rate of return thereon. 

However, the interest income on FD is subject to income tax deductions. The annual interest earned on fixed deposits is taxable in the same financial year. However, as per the rules and regulations of TDS on FD, only the interest income over and above the exemption limit is subject to income tax deductions. Known as the TDS on FD interest, it is the tax deducted at source. 

How TDS on fixed deposit interest is calculated often remains a common question for fixed deposit holders. Also, who will deduct the TDS on FD? Whether it is the responsibility of the bank authority or does the onus lie on the individual investor? To understand the implications of TDS on FD interest, one must become familiar with its fundamentals. 

This article helps you understand these and all other questions that revolve around TDS on interest on Fixed Deposit. 

What is TDS on Fixed Deposit?

The interest that accrues on fixed deposits is taxable under the Income Tax Act of India, 1961. The actual rate of taxation on FD interest will depend upon the individual’s income tax slab. However, the TDS on FD interest is a uniform deduction that is done at the source. According to the definition, “TDS, or the Tax Deducted At Source, is a procedure implemented by the Income Tax Department to collect taxes at the source of income.” Thus, TDS on Fixed Deposit interest is the tax deducted by the financial institution on the interest income earned on the Fixed Deposit amount by the investor. 

Understand Everything about TDS on FD Investments

Both banking and non-banking financial institutions are authorised to hold Fixed Deposit accounts. The interest earned on these Fixed Deposits is subject to taxation as per the Income Tax rules.

1. TDS on Bank FD

TDS on FD interest attracts a tax deduction of 10%. This charge is levied on income more than Rs 40,000 if the depositor is less than 60 years of age. For senior citizens, i.e. people above 60 years of age, TDS on interest on Fixed Deposit is levied if the interest income exceeds Rs 50,000 in a financial year. 

2. TDS on Non-Bank (NBFC) FD

A Non-Banking Financial Corporation does not engage in traditional banking services. However, it is authorised to advance loans and accept deposits. The threshold limit for TDS on a Fixed Deposit held in an NBFC is different from that of a regular banking institution. If the interest income exceeds Rs 5,000 in a financial year, the TDS on FD is deducted at the rate of 10%. This TDS deduction rate varies depending on whether the depositor has submitted a PAN card or not. 

Who Deducts TDS on Fixed Deposit?

As TDS is the tax deducted on income at source, any financial institution or bank offering investments in Fixed Deposit schemes is responsible for deducting TDS on fixed deposit interest. As a general practice, the TDS on Fixed Deposit interest is an automatic deduction that takes place at the end of every financial year.

What are the Rules and Regulations of TDS on FDs?

Certain guidelines are issued by the Income Tax Department that must be abided by when it comes to the deduction of TDS on Fixed Deposit interest. The rules and regulations of TDS on FD are as follows:

  • TDS on FD is applicable only if the interest earned on fixed deposits exceeds the threshold limits in a given financial year. 

  • The bank or the financial institution in which the Fixed Deposit is held is responsible for deducting TDS on FD.

  • TDS on FD is deducted at a flat rate of 10% rate in a given fiscal year where PAN details are available.

  • The rate of TDS on Fixed Deposit interest increases to 20% if the PAN details of the investor are not available. 

  • In the case of Fixed Deposits held in joint names, the TDS on FD is made for the primary account holder. The second holder is not liable for any deductions relating to TDS on FD.

  • The TDS on FD deductions happen at the end of each financial year when the interest is credited and not once at the time of the final maturity of the Fixed Deposit.

  • Interest earned on Tax Saver FD is also subject to TDS deduction.

  • All TDS deductions are reflected in the PAN account of the depositor.

TDS Rate on FD – In a Nutshell

The rate of TDS on interest on Fixed Deposit depends upon different factors like the depositor's age, Income Tax slab, and PAN status.

Indian Residents – TDS rate when PAN is shared

For all Indian residents who hold Fixed Deposits in authorised banks, the TDS on FD interest is 10% if the PAN details are shared. 

Indian Residents and NRIs – TDS when PAN is not shared

If the investor does not furnish the PAN details to the financial institution, the latter is authorised to deduct TDS on FD at 20%. 

For NRIs, the TDS on FD interest is 30% 

Fixed Deposit Type

TDS Rate

Fixed Deposit

10%

Fixed Deposit without PAN card

  20%

NRO FD

30%

NRE FD

  Tax-Free

Foreign Currency Non-Resident Account (FCNR) FD

Tax-Free

Exemption Limit for TDS Deduction on FD

The TDS on FD interest is subject to certain exemptions. These exemption limits change from time to time. Being aware of the latest exemption limits for TDS on FDinterest helps in better financial planning. 

As per the current Income Tax rules, the exemption limit for TDS deduction on FD are as follows:

  • An interest income of up to Rs. 40,000 per year is exempted from TDS deduction. This means if the interest earned on Fixed Deposits in a financial year is up to Rs 40,000, no TDS on interest on Fixed Deposit is deducted. 

  • This limit is Rs. 50,000 for senior citizens. 

  • Individuals who have a total taxable income lower than Rs. 2.5 lakh per annum, no TDS on FD interest is deducted. 

How is TDS on FD Interest Calculated?

The interest income earned on Fixed Deposits is fully taxable. They form a part of your total income under the heading ‘Income From Other Sources’ and are taxed as per the applicable income tax slabs. When the financial institution credits the interest on the Fixed Deposit, the TDS amount is deducted automatically. 

Here is an illustration showing how is TDS on FD interest calculated:

Case 1: Mr X deposits Rs. 5 lakh as a Fixed Deposit with a bank at a rate of interest of 7% p.a. He will earn Rs. 35,000 as interest per year. Since this amount is within the exemption limit of TDS on FD, no TDS will be deducted. 

Case 2: Mr X deposits Rs 10 lakh as a Fixed Deposit with a bank/NBFC at a rate of interest of 7% p.a. He earns Rs. 70,000 as interest income per year. TDS will be deducted on the same at the rate of 10%. Therefore, the TDS on FD interest is Rs. 7000.  

In case Mr X has not submitted his PAN details to the bank, TDS on interest on Fixed Deposit is deducted at the rate of 20%. Therefore, a TDS of Rs 14,000 will be deducted.

Please note that if the FD is for a 3-year tenure, the TDS amount will be deducted every year. 

What is TDS on FD Interest for Senior Citizens?

Senior citizens who invest in Fixed Deposits enjoy an exemption limit of Rs. 50,000. Thus, TDS on FD interest at the rate of 10% will be deducted only if the interest earned is more than Rs. 50000 in a financial year. 

What is TDS on FD Interest for Non-Senior Citizens?

Adults below the age of 60 years who hold Fixed Deposits in banks enjoy an exemption limit of TDS on interest on fixed deposit @ Rs. 40,000. Thus, TDS on FD interest is deducted at the rate of 10% only if the interest earned is more than Rs. 40000 in a financial year. 

How to Pay Income Tax on Fixed Deposit Interest Income?

The TDS on FD interest can be a portion of the entire tax liability of an individual. On the other hand, there can also be a situation wherein the TDS deducted is more than his/her total tax liability. The excess amount deducted as TDS in such a case can be claimed as an Income Tax refund.   

Thus, all interest income earned during the year is to be added to the total income during self-assessment return filing. 

Interest paid

Threshold limit

 

Senior citizen (Rs)

Other person (Rs)

Co-operative

engaged in business

50,000

40,000

Co-operative engaged in the banking business

50,000

40,000

Primary Agricultural Credit Society

50,000

40,000

Co-op. Land Mortgage Bank

50,000

40,000

Co-op. Land Development Bank

50,000

40,000

When to Pay Tax on FD Interest Income?

The tax on FD interest income is to be paid at the time of annual return filing. It will take into account all interest income earned between April 1 - March 31 of a particular financial year. 

Is FD Interest Taxable When My Income Falls Below the Tax Threshold?

The FD interest income is fully taxable. It is considered as ‘income from other sources’. However, in case the annual income of the Fixed Deposit holder is below the tax threshold of Rs. 2.5 lakh per annum, the fixed deposit interest income is not taxed at source. In this case, the depositor is required to submit Form 15G/ Form 15H.

How to Avail TDS Waiver on FD?

All Fixed Deposit holders who wish to avail of TDS waiver on FD must submit Form 15G or Form 15H to the concerned bank. These are self-declaration forms that claim that the total income is below the exemption limit and the tax payable, if any, will be paid by the depositor at the time of self-assessment tax filing. 

What are Form 15G and 15H?

Form 15G and 15H are self-declaration forms. However, the two forms are different and used under different circumstances. 

  • Form 15G

Form 15G is to be submitted if the depositor is below 60 years of age. The 15G Form states that the annual income of the depositor is less than Rs. 2.5 lakh, and the tax liability is NIL. 

  • Form 15H

Form 15H is to be submitted if the depositor is more than 60 years old. It is only for Senior Citizens and states that their annual income is less than Rs. 3 lakh. Super Senior Citizens i.e. people above the age of 80 years, must also submit the 15H Form if their annual income is less than Rs. 5 lakh. 

Ways to Reduce TDS on FD

Here are some ways how to reduce TDS on FD:

  • Submit Form 15G/15H - Adults/senior citizens/super senior citizens who have an annual income below the tax threshold limit must submit Form 15G/15H.

  • Make Investments Under The Name of Family Members - Instead of holding all Fixed Deposits in one name, make investments in the names of different family members like spouses, parents, etc. Each individual is liable to pay taxes only for the investments made under his/her name. 

  • Open FDs in Different Banks - The issuing authority is responsible for deducting TDS only on the investments made in their institution. Having FDs in different banks/NBFCs can help you stay within the TDS exemption radar. 

FAQs about TDS on FD Interest

Q: What is the TDS rate on FD?

The TDS on FD interest is 10%. It is 20% for Fixed Deposits held without submission of PAn details.  

Q: How much interest on FD is TDS free?

FD interest up to Rs. 40,000 for adults and up to Rs. 50,000 for senior citizens is exempted from TDS in one financial year.

Q: How can I avoid a TDS deduction on FD?

To avoid TDS on FD interest, submit Form 15G/15H. Secondly, split FD investments under different names of family members or hold FD accounts in different banks. 

Q: How is TDS calculated on FDs?

If the interest income on FD is more than Rs. 40,000 in one financial year, 10% of the interest income is deducted as TDS. This limit is Rs. 50,000 for senior citizens. 

Q: Will I be issued a certificate for TDS on FD?

Yes, certificates for TDS on FD are issued to the depositor. They also reflect under the individual’s PAN account statement. 

Q: What is the use of Form 26AS for TDS on Fixed Deposit?

Form 26AS is also known as the Tax Credit Statement. It provides a consolidated record of all TDS deductions made for a PAN number. 

Q: Is there any minimum amount for which there is no TDS on FD? 

If the annual interest income is less than Rs. 40,000 (Rs. 50,000 for senior citizens), no TDS on FD will be deducted.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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1. Provided all due premiums have been paid and the policy is in force.

15. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

@Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

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Note - Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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