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TDS on Fixed Deposit

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 TypeTDS Rate
Fixed Deposit10%
FD without PAN Card20%
NRO (Non-Resident Ordinary) FDs30%
NRE (Non Resident External) FDsTax Free
FCNR (Foreign Currency Non Resident) FDsTax Free

What is a Fixed Deposit?

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.

Ways to Reduce or Save Tax on Fixed Deposits

  1. In case your annual income is below Rs. 2.5 lakhs, you will not be subject to TDS as your income does not fall in the taxable slabs. However, you will be required to submit form 15G and 15H.
  2. You can open an FD in the name of your family members - spouses or parents. The tax on fixed deposit interest income is calculated for an individual and the tax they are charged depends on their respective tax slab.
  3. You can open an FD across different branches and in different banks. Instead of investing a single lump sum amount, you can split the amount between 3 different banks (in FDs). You will get an interest from each FD.
  4. Invest your FD amount closer to the end of the financial year or the middle of the year. In such case, the TDS will be distributed in two years. This may result in the interest calculation for a particular year falling below Rs. 10,000 and no TDS will be deducted.

Points to Know About TDS on FD

  1. 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.

  2. 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.

  3. Tax on the interest income should be paid manually and not at the time of the FD maturity.

TDS on Recurring Deposits (RDs)

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.

FAQs on TDS on Fixed Deposit

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?

  • The TDS amount can be deposited to the credit of the Central Government by following modes:
  1. Physical Mode: By furnishing the Challan 281 in the authorized bank branch
  2. Electronic mode: E-Payment is mandatory for all corporate assesses and assesses (other than company) to whom provisions of Section 44AB of the Income Tax Act, 1961 are applicable

Where can I get a TDS form?

You can download the TDS/TCS Tax Challan from the official website of Income Tax India.

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