TDS on Fixed Deposit Interest- A Practical Guide

What is TDS on Fixed Deposit?

Interest earned on Fixed Deposits (FDs) is a safe and popular way to invest money. But, there’s something important to know: TDS, or Tax Deducted at Source. This means the bank takes out some tax from the interest you earn before giving it to you. In this guide, we’ll first explain the latest updates for FY 2024-2025 on TDS on fixed deposit, then, how TDS affects your FD returns, what the current tax rules are, and how you can manage your taxes better. Keeping up with the latest tax rules will help ensure your investments are in good shape.

Latest Updates for Financial Year 2024-25 on TDS on Fixed Deposit Interest

Threshold Limit

As per the general rule, for the financial year 2024-25, if you earn more than ₹40,000 in interest from Fixed Deposits (FDs) in a year, the bank will deduct TDS (Tax Deducted at Source) from the interest.

However, if you’re 60 years or older (senior citizens), the limit is higher—₹50,000. So, if a senior citizen earns ₹55,000 in interest, TDS will only be deducted on the extra ₹5,000.

This way, the bank handles the tax before you get your interest.

TDS Rate

If you’ve given your PAN (Permanent Account Number) to the bank, the TDS on your FD interest is 10%. However, if you haven’t provided your PAN, the TDS rate jumps to 40%.

For instance, let’s say you earn ₹60,000 in interest from your FD. If your PAN is on file, the bank will deduct ₹6,000 (10%). But if you don’t have a PAN, they’ll deduct ₹24,000 (40%). This shows how important it is to give your PAN to the bank.

Form 15G/15H:

If you’re under 60 and your total income is below the taxable limit, you can submit Form 15G to avoid TDS on your FD interest. On the other hand, for senior citizens, Form 15H does the same thing, helping them avoid TDS if their income is below the tax-free threshold.

For example, let’s say your total income, including FD interest, is ₹3,00,000, and you’re under 60. You can submit Form 15G to the bank, so they don’t deduct TDS on your interest if your income is below the tax limit.

TDS on Fixed Deposit Interest and Filing Tax Returns:

Even if TDS is deducted from your FD interest, you still need to file an income tax return to report that income. The TDS amount is credited to your tax account and can be used to offset your total tax liability. If the bank deducts more TDS than what you actually owe in taxes, you can claim a refund when you file your tax return. For example, if ₹6,000 is deducted, but you only owe ₹4,000 in taxes, you can get a ₹2,000 refund.

Impact of New Tax Regime On TDS on Fixed Deposit Interest

With the new tax regime, the tax slabs and rates have changed, so it’s important to see how your FD interest fits into your overall tax calculations. For example, if your total taxable income is ₹5,00,000 and falls into a lower tax slab, you need to make sure the TDS deducted matches up with the new tax rules. This helps ensure you’re paying the right amount of tax based on the latest guidelines.

How TDS on Fixed Deposit Interest Affects Your FD

Interest Payment: When you earn interest on your FD, TDS is deducted before the money is added to your account. For example, if your FD earns ₹20,000 in interest and the bank deducts 10% TDS (₹2,000), you’ll receive ₹18,000.

Tax Credit: The TDS amount is added to your income tax account and will show up in your Form 26AS. This helps you keep track of the tax deducted and adjust it against your total tax when you file your return.

Important Tips

Update PAN: Ensure your PAN is linked with your FD accounts because without PAN you will pay higher TDS rates.

Submit Forms: Use Form 15G/15H if eligible to prevent unnecessary TDS. Submit these forms at the beginning of the financial year or before the FD interest is credited.

Track and Report: Keep a record of your FD interest and TDS deducted. Doing so will make tax filing smoother and help in claiming any refunds.

By understanding how TDS on Fixed Deposits works and keeping up with the latest updates, you can manage your finances efficiently and avoid any surprises during tax season.

Let’s calculate the taxes for an individual with an annual salary of ₹15 lakh and a fixed deposit (FD) of ₹1 crore.

Step 1. Calculate Interest Income from FD

Assume the annual interest rate for the FD is 6% (you can adjust this if you have the actual rate).

Then, the interest income from FD = 1,00,00,000 X 6% = ₹6,00,000

Step 2. Total Income

Add the FD interest to the annual salary

Now, total Income =15,00,000 + 6,00,000 = ₹21,00,000

Step 3. TDS Deduction

Since the total interest income exceeds ₹40,000, TDS will be deducted. Assuming the PAN is provided:

TDS on FD Interest: 10% of ₹6,00,000 = ₹60,000

Step 4. Income Tax Calculation

Using the tax slabs for FY 2024-25 for an individual below 60 years:

– Up to ₹3,00,000: Nil

– ₹3,00,000 to ₹6,00,000: 5% of income exceeding ₹3,00,000

– ₹6,00,000 to ₹9,00,000: 10% of income exceeding ₹6,00,000

– ₹9,00,000 to ₹12,00,000 : 15% of income exceeding ₹9,00,000

– ₹12,00,000 to ₹15,00,000: 20% of income exceeding ₹12,00,000

-Income above ₹15,00,000: 30%

Step 5. Tax Calculation

1. Income up to ₹3,00,000: Nil

2. Income from ₹3,00,001 to ₹6,00,000 = (6,00,000 – 3,00,000) X 5% = ₹15,000

3. Income from ₹6,00,000 to ₹9,00,000= (9,00,000 – 6,00,000) X 10% = ₹30,000

4. Income from ₹9,00,000 to ₹12,00,000 =(12,00,000 – 9,00,000) X 15% = ₹45,000

5. Income from ₹12,00,000 to ₹15,00,000 = (15,00,000 – 12,00,000) X 20% = ₹60,000

6. Income from ₹15,00,000 to ₹21,00,000 = (21,00,000-15,00,000) X 30% = ₹1,80,000

Step 6. Total Income Tax

Total Tax = ₹15,000 + ₹30,000 + ₹45,000 + ₹60,000 + ₹1,80,000 = ₹3,30,000

Step 5. Add Cess

Health and Education Cess: 4% of ₹3,30,000 = ₹13,200

Total Tax Including Cess: ₹3,30,000 + ₹13,200 = ₹3,43,200

Step 6. TDS Adjustment

Subtract the TDS already deducted:

Thus, tax Payable: ₹3,43,200 – ₹60,000 = ₹2,83,200

Therefore, the individual’s total tax liability for the financial year is ₹3,43,200. However, after adjusting for the TDS of ₹60,000, the remaining tax payable is ₹2,83,200.

Conclusion

In summary, understanding TDS on Fixed Deposits is important for managing your money smartly. TDS is the tax the bank takes from your FD interest before it reaches you. By knowing the rules, like providing your PAN to avoid higher TDS rates and using forms like 15G or 15H if eligible, you can ensure you’re not paying more tax than necessary. Again, keeping track of your interest and TDS helps you file your taxes correctly and claim refunds if needed. Staying informed will help you handle your finances better!

Disclaimer:

The information provided in this document is for educational purposes only and does not constitute financial advice. Please consult with a financial advisor before making any investment decisions.