Tax Deduction at Source (TDS) is the Central Government tax. When a financial institution pays you the interest on your investment, it has to deduct tax on your earned interest before transferring it to you. This tax is known as TDS. The deducted TDS will be paid to the Central Government. And, the institution will pay you the net amount after deducting tax. This net interest income you need to add to your gross income to calculate the income tax. You can adjust this paid TDS against your final tax liability. The TDS rate is subject to the interest amount and residential status of the investors.
TDS on FDs
- Fixed deposits (FDs) principal amount will not be considered for taxes. Only the interest earned on fixed deposits is taxable in the hand of investors under the head “Income from Other Sources.”
- The TDS will be deducted by the bank/NBFC on your fixed deposit at the time of interest credited to your account and not at the maturity date.
- In the case of bank FD, if the interest income is more than Rs.40,000 (Rs.50,000 for senior citizens) in a financial year, the TDS will be applicable @ 10% annually. This limit is Rs.5,000 in the case of NBFC FDs.
- Let us take an example. Suppose you opened a bank FD account on 1st April 2021 for four years. And the interest income on this fixed deposit exceeds Rs.10,000 between 1st April 2021 and 31st March 2022. In that case, the bank will deduct the TDS on the interest income @ 10% at the time of interest credited to your account, i.e., at the end of the financial year 2021-22, not at the maturity date after four years. TDS will be calculated and deducted at the end of every financial year.
- As an investor, you need to add the net interest on FD to your total income in a financial year and pay taxes as per the slab rates your total income falls into.
- In the case of a joint FD account, the primary account holder will be liable to add the net interest in his/her taxable income.
- You can invest in 5-years tax-saving FDs to save TDS.
The maximum threshold of the TDS deduction can be claimed/adjusted while filing the income tax return.
- An individual who is less than 60 years old can claim the TDS deduction on interest income of Rs.40,000 maximum under section 80TTA.
- A senior citizen who is more than 60 years old can claim TDS deduction under section 80TTB of a maximum of Rs.50,000.
Such claims can be made if your total income in a financial year is less than the maximum non-taxable income.
You can use the Bajaj Finance FD rate calculator to estimate your interest income on an FD amount even before opening an FD account. Bajaj Finance FD interest rates have been raised recently. They are offering FD interest rates up to 6.75%.
Investors need to submit Form 15G / 15H to the FD issuer.
- Form 15G is for non-senior citizens of less than 60 years.
- Form 15G is for senior citizens of more than 60 years.
- The TDS rate on interest income is 10% if an Indian citizen has submitted your PAN details.
- TDS rate is 20% if an Indian citizen has not submitted your PAN card.
- For NRIs, the TDS rate is 30%.
- NRE and FCNR FDs are tax-free; however, every institution does not offer such FDs.
Save on TDS
You can save TDS on FDs by spreading your FDs across financial years. A flexible FD in terms of tenor and investment amount can help you here like Bajaj Finance FD which provides features such as multi deposit facility and auto-renewal option.
You can split an FD interest across two financial years (FYs). For example, you can invest in a 12-month FD in October month instead of April to split it into two FYs as a FY closes on 31st March, and in this way, the FD interest will be split across two FYs, and TDS can be avoided.
Investors can consider Bajaj Finance Fixed Deposit to earn higher returns up to 6.75% in the flexible tenor of 12-60 months. With such high returns, you can offset the effect of TDS deduction on your interest income. The FD calculator would help you to invest the right amount in an FD account to meet your financial goals.