Fixed Deposit investments provide returns in the form of interest payouts post maturity. The interest you have earned from a fixed deposit is fully taxable. If the interest earned is more than the prescribed amount, TDS will be deducted as per the Income Tax Act, 1961. In short, TDS is the tax deducted at source. It was introduced with the aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. In case of an FD, this Tax is Deducted at Source by the bank at the time they credit the interest to your account, and not when the FD matures. Form 26A or TDS certificate is issued by the deductor.
The rate for Tax Deducted at Source on fixed deposits (FDs) is 10% if the interest amount for the entire financial year exceeds Rs. 10,000 for AY 2019-20. As per the Union Budget 2019, this TDS deduction limit on FD has been increased to Rs. 40,000 annually for AY 2020-21. For senior citizens, the TDS deduction limit has been revised to Rs. 50,000 per year in FD interest tax-free and no TDS will be deducted for interest received up to Rs. 50,000 per annum.
| FD Type | TDS Rate |
|---|---|
| Fixed Deposit | 10% |
| FD without PAN Card | 20% |
| NRO (Non-Resident Ordinary) FDs | 30% |
| NRE (Non Resident External) FDs | Tax Free |
| FCNR (Foreign Currency Non Resident) FDs | Tax Free |
A Fixed Deposit is a savings instrument in which you are required to invest a lump sum amount for a pre-defined time period and rate of interest. On maturity, the depositor gets back the interest earned along with the principal amount. FDs are risk-free and relatively safe.
If you’re liable for a lower tax rate and the bank has deducted TDS, you can claim the amount back as a refund in your income tax return.
In case you come under a higher income tax slab rates of 20% and 30%, you will need to pay the tax over the TDS charged separately.
Tax on the interest income should be paid manually and not at the time of the FD maturity.
Recurring Deposits is a type of savings deposit schemes in which you are required to invest on a monthly basis. Interest on RD is taxable as per your tax slab. The TDS provisions on RDs are the same as TDS on FD. For senior citizens, interest income from RDs/FDs up to Rs. 50,000 per annum is exempt.
How is interest income charged?
Interest income from fixed deposit is totally taxable. You need to add it to your total income and get tax calculated at slab rates applicable to your total income. This section is available under ‘Income from Other Sources’.
How much tax benefit can be availed with a Tax Saver FD?
You can avail a deduction of Rs. 1.5 lakh from your taxable income with a Tax Saver FD. This is as per Section 80C of the Income Tax Act, 1961.
Is FD insured?
Yes, FDs are a relatively safe option with guaranteed returns. FDs up to Rs. 1 lakh are guaranteed by the Deposit Insurance Guarantee Corporation of India (DIGCI)
How to pay TDS?
Where can I get a TDS form?
You can download the TDS/TCS Tax Challan from the official website of Income Tax India.
