TDS on FD Interest: Rates, Exemptions & How to Avoid Excess Tax

• TDS is deducted on FD interest exceeding ₹40,000 per year (₹50,000 for senior citizens).
• The TDS rate is 10% with PAN, 20% without PAN, and 30% in the case of NRIs.
• Form 15G/15H is submitted to avoid TDS in case your taxable income is below the threshold limit.
• Monitor and distribute FDs smartly to handle TDS and tax liabilities.

Amongst the most famous investment options, fixed deposits (FDs) provide safety, assured return, and flexibility too. However, the interest earned on FD is taxable, and a TDS (Tax Deducted at Source) might also apply under specified conditions.Do you know the TDS rules on FDs? If you don't, read on.

The Income Tax Act of 1961, applies taxes on the interest earned on the fixed deposits. Tax Deducted at Source is a system under which the bank or other financial institution deducts the tax from interest earned on the FD, before depositing it in your account.In other words, the income tax department uses TDS to collect the tax at the source of income. This means partial tax collection at the source itself, hence reducing the chance of tax evasion. The tax slab of an individual's income will decide the actual tax rate on FD interest.

Fixed Deposit accounts are allowed in both banks and NBFCs (Non-Banking Financial Companies). Interest earned on such deposits is taxed as per the same laws. However, in the case of TDS deductions, the rules are different. Take a look:

TDS on Bank FD

FD interest attracts a 10% tax deduction as the TDS amount if PAN card details are submitted. If not, the TDS rate increases to 20%.If the depositor is less than 60 years old, TDS will be levied if the interest income is more than ₹40,000. In the case of senior citizens, TDS is deducted if their interest earnings go beyond ₹50,000 in a financial year.

TDS on NBFC FD

A fixed deposit in an NBFC has a different TDS threshold limit compared to one held in a regular bank. TDS on FD is deducted at 10% if interest income during a fiscal year exceeds ₹5,000.The rate of TDS deduction varies based on whether the depositor has or has not furnished a PAN card. It is 10% if PAN is submitted and 20% otherwise.

TDS on FD with an example

This is how TDS on FD works:Any interest income above ₹40,000 a year for a common man (below 60 years) is liable to 10% TDS. Suppose you have three FDs: Bank A (interest of ₹60,000), Bank B (interest of ₹20,000), and Bank C (interest of ₹10,000). TDS will be charged only when bank A's interest crosses the ₹40,000 mark. The interest of Banks B and C will be exempted from TDS.Section 80 TTB of the Income Tax Act provides a higher exemption limit of ₹50,000 to senior citizens (60 years and above). However, as proposed in the Union Budget 2025, the limit has been raised to ₹1 lakh.

The TDS is calculated on the total interest earned if it exceeds the specified limit. Here’s an example -

• Total interest earned - ₹55,000
• TDS - 10%
• TDS payable = 10% of ₹55,000 = ₹5,500

TDS on the interest earned needs to be deducted by the bank or NBFC with which you have opened the FD account. This is because TDS is a source-based tax and is deducted by the entity offering the income.The TDS on the interest received from the fixed deposits usually gets deducted automatically towards the end of every financial year. Also Read: Difference Between TDS and Income Tax Return

Here are some important TDS rules that you should know about: Applicability TDS on FD is applicable only when the interest earned on fixed deposits exceeds the threshold limitations in a particular fiscal year. TDS Exemption No TDS is deducted from FD interest if the annual total taxable income is less than ₹2.5 lakh. You can submit Form 15G/15H to claim TDS exemption in these cases. TDS for NRIs For NRIs, the TDS on FD interest is 30%. The limit beyond which TDS is applicable is ₹40,000. Cumulative FDs In cumulative FDs, where interest is compounded and paid at maturity, TDS is deducted annually based on the accrued interest, even if the interest is not credited to your account. TDS in Case of Joint Account The primary account holder will have to pay TDS on the fixed deposits maintained in joint names. No responsibility of deduction for TDS on FD falls upon the second holder. Timing TDS on FD deductions will take place at the end of each fiscal year rather than when the fixed deposit matures completely Record Every deduction made through TDS is recorded in your PAN account.

If you are unsure of TDS deductions and want to check them, you can use any of the following ways: Form 26AS Check your Form 26AS on the Income Tax e-filing portal for the TDS deducted by the bank. Bank Statement Banks usually mention TDS deductions in your account statements. Year-End TDS Certificate Banks give a TDS certificate (Form 16A) summarising the tax deducted and deposited with the government. You can check the statement to find the total TDS deduction.

There are ways to avoid TDS deductions from your FD interest. Some of them are as follows: Submit Form 15G/15H Those who earn less than the limit amount may submit Form 15G (for people below 60 years) or Form 15H (for senior citizens) to the bank so that they will not deduct TDS. Spread FDs Across Banks You can spread out your FDs in several banks so that the interest earned by each bank will not cross the TDS threshold. Tax-Saving Investment Options Tax-saving FDs (under Section 80C) or other instruments like PPF, ELSS, or NSC to reduce overall tax liability. They can also reduce your taxable income below the threshold limit to avoid TDS. Monitor Joint Accounts In the case of joint FDs, TDS is deducted based on the primary account holder's PAN. Ensure proper allocation of interest income while filing tax returns. Invest in Family Members' Names Instead of having all your fixed deposits in one name, invest in the names of your parents, spouses, and other family members. A person is liable to pay tax only on the investments made in his name.

The exemption limit for TDS deduction on an FD, as per income tax rules, is:

• Interest of up to ₹40,000 earned per annum is exempt from TDS.
• Interest income above ₹40,000 will be liable for TDS.

Manage Your Tax Liability Efficiently It is very important to understand TDS on FD interest for effective tax planning . While FDs remain a secure and reliable investment option, being aware of the tax implications can help you avoid surprises and maximise your returns.Monitor your interest income, check TDS deductions, and file your tax returns accurately to ensure compliance and claim any refunds due. If in doubt, seek professional advice to make informed financial decisions.