| Overview: Fixed deposit interest above ₹40,000 attracts 10% TDS, but you can claim exemptions through Form 15G/15H or get refunds when filing ITR. Understanding TDS rules helps maximise your FD returns and avoid surprises during tax season. |
Understanding Taxes on Fixed Deposits in India
Fixed deposits remain India’s most trusted savings instrument, with over 60% of household savings parked in bank deposits, according to RBI data. However, many investors get surprised when they see TDS deducted from their FD interest.
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Understanding how much tax is deducted on fixed deposit interest helps you plan better and avoid unexpected reductions in your returns. The tax treatment of FD interest can significantly impact your net earnings, especially if you’re investing large amounts or have multiple FDs across different banks.
What Is TDS on Fixed Deposit Interest
TDS (Tax Deducted at Source) is a mechanism where banks deduct tax directly from your FD interest before crediting it to your account. This system ensures tax collection at the source of income generation.
Banks are required to deduct TDS on FD interest when the annual interest from all your FDs with that bank exceeds ₹40,000. This threshold applies per bank, not per FD account.
TDS Rates on FD Interest:
- 10% for individuals with PAN card
- 20% for those without PAN card
- No TDS for senior citizens earning up to ₹50,000 annually from FDs
How Much Fixed Deposit Interest Is Tax-Free
While TDS gets deducted at the source, your actual tax liability depends on your total income and applicable tax slab. The concept of “tax-free” FD interest has two aspects:
TDS Exemption: You can avoid TDS deduction by submitting Form 15G (below 60 years) or Form 15H (senior citizens) if your total income falls below the taxable limit.
Actual Tax Liability: FD interest is added to your total income and taxed according to your income tax slab. If your total income is below ₹2.5 lakh (₹3 lakh for senior citizens), no tax is payable on FD interest.
| Did you know: Senior citizens get higher TDS exemption limits—up to ₹50,000 annual FD interest compared to ₹40,000 for others, as per Income Tax Act provisions. |
FD Interest Exemption and TDS Deduction Rules
You can claim FD interest exemption in income tax in multiple ways:
Form 15G/15H Submission: Submit these forms to your bank before the financial year begins. This prevents TDS deduction if your expected total income is below taxable limits.
Claiming Refunds: If TDS is deducted but your actual tax liability is lower, claim the excess amount as a refund while filing your ITR.
| Important Fact to Know: TDS on FD interest is adjusted against your total tax liability when filing ITR. Excess TDS can be claimed as a refund, making it a prepaid tax rather than an additional burden. |
Exemption on FD Interest for Different Categories
The exemption on FD interest varies based on your profile and income level:
Regular Taxpayers: Can avoid TDS by submitting Form 15G if total income is below ₹2.5 lakh annually.
TDS for Senior Citizens’ Fixed Deposit: Senior citizens enjoy higher exemption limits and can submit Form 15H to avoid TDS on interest up to ₹50,000 annually.
Non-Resident Indians: Face higher TDS rates and different exemption rules based on Double Taxation Avoidance Agreements.
The key is understanding that TDS deduction doesn’t equal your final tax liability. You can always claim refunds or pay additional tax based on your actual income tax slab during ITR filing.
Making Tax-Efficient FD Investments
Understanding taxes on FD ensures you make informed investment decisions. While TDS gets deducted upfront, your actual tax depends on total income. Use Form 15G/15H to avoid unnecessary TDS deduction, and always file your ITR to claim any excess TDS as a refund. Smart FD planning with proper tax knowledge maximises your returns.
Consider laddering your FDs with different maturity dates to manage tax liability across financial years. This strategy helps maintain steady income while optimising tax implications. For higher returns with tax benefits, explore tax-saving FDs under Section 80C, though these come with a 5-year lock-in period.
Fixed deposits by Airtel Finance offer competitive interest rates with flexible tenure options, making it easier to plan your tax-efficient investments.
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FAQs
1. What is the current FD interest limit for TDS deduction?
TDS is deducted when FD interest from a single bank exceeds ₹40,000 annually. This limit applies per bank, not per FD account.
2. How can senior citizens avoid TDS on fixed deposit interest?
Senior citizens can submit Form 15H to avoid TDS if their total income is below taxable limits and annual FD interest doesn’t exceed ₹50,000.
3. Is there any tax on FD interest below the TDS threshold?
Yes, FD interest below the TDS threshold is still taxable as per your income tax slab, but no TDS is deducted at the source.
4. Can I get a refund if excess TDS is deducted on my FD?
Yes, excess TDS can be claimed as a refund while filing your income tax return if your actual tax liability is lower than the TDS deducted.
5. How does interest on FD deduction affect my tax planning?
FD interest is added to your total income and taxed as per applicable slab rates. Plan FD investments considering your total income to optimise tax liability.
