TDS Rate on FD Interest: All You Need to Know

A fixed deposit (FD) is one of the most popular fixed-return investment options in India, offered by banks, post offices, and other financial institutions. Among the biggest advantages of FDs is that you can earn interest on the money you park for a pre-determined duration, with low risk. 

However, like most other investment options, earnings from FDs are taxable. Interest earned on FDs is subject to Tax Deducted at Source (TDS). By charging TDS on an income, the government aims to collect taxes from the source of income. While the income earned from an investment is offered to tax after the end of the financial year at the time of filing the income tax return, tax on that income is collected in advance by way of TDS. 

In the context of bank FDs, the bank deducts the tax due on the interest and deposits it with the government. It is important to understand the TDS rules since in many cases, you may be eligible for an exemption from TDS. This article answers the question, ‘what is the TDS rate on FD interest’ and will help you find out whether you are eligible for an exemption from TDS. 

TDS rate on Fixed Deposit

FDs are an investment scheme offered by banks and other financial institutions where you can earn interest on the money parked for a pre-determined duration. As mentioned above, FDs generate returns through fixed interest. 

Depending on the type of FD you have chosen, the interest will either be reinvested upon maturity of the FD along with the principal amount or credited to your bank account on a regular basis. A tax is deducted at source on the interest by the bank and paid to the government.

Section 194A of the Income Tax Act, 1961 (IT Act) deals with the provisions relating to TDS on interest on FDs paid to an Indian resident. The applicable rate of TDS depends on factors such as the amount of interest, the payer, and the age of the recipient. Interest earned in a financial year up to certain thresholds is not subject to TDS. The different thresholds that apply are mentioned below:

PayerThreshold Limit (₹) for Senior CitizensThreshold Limit (₹) for Others
Bank, post office, or co-operative society50,00040,000
Any other case5,0005,000

If the interest earned during a financial year is higher than the threshold mentioned above, tax is deducted at source at the rates mentioned below:

RecipientTDS Rate
Indian residents with PAN10%
Indian residents without PAN20%
Non-Resident Ordinary (NRO) Account 30%
Non-Resident External (NRE) AccountExempt

Also Read: Tax Saving FD Interest Rates 2023

How is TDS on FD calculated?

As mentioned before, TDS is applicable on FDs when the interest earned is more than ₹ 40,000 in a financial year.

Let us take an example to understand this better. For ease of calculation, let us assume you are an Indian resident with a PAN card. The rate of TDS applicable to you will be 10%. If you earn ₹ 20,000 as interest from FD, the TDS would be—

10% of 20,000 = ₹ 2,000

At the same time, if you are an Indian resident without a PAN card, then the TDS would be 20% of ₹ 20,000, which is ₹ 4,000.

How to Save Tax on FD

The best way to save tax on FDs is by opting for a tax-saving FD. The interest earned on FDs is taxable according to the income tax slab applicable to you. However, the principal amount is eligible for a tax deduction of up to ₹ 1.5 lakh under section 80C of the IT Act. Tax-saving FDs have a lock-in period of 5 years, and withdrawing before the maturity period is not possible, even if you pay penal interest. If that does not work for you, here are some ways you could look to reduce or avoid TDS on regular FDs.

Form 15G/15H

Your income from FD is not taxable if your income doesn’t fall in a tax slab, i.e., if it is lower than the basic exemption limit. The basic exemption limit applicable to resident citizens and senior citizens is ₹ 2,50,000 and ₹ 5,00,000 respectively. You can claim a TDS exemption through a form 15H declaration if you are a senior citizen. In all other cases, you can use form 15G.

Distributing FDs

Since interest up to the thresholds mentioned above is not subject to TDS, you can avoid TDS by spreading your FDs across multiple banks. Your interest in FDs held with different banks is not aggregated for the purpose of applying the threshold limit of no tax deduction.

Also Read: How to Apply for TAN? Acknowledgement, Document and Payment Details

Timing Your FD Right

Another way to save tax on FD is by timing your FD investments correctly. You may time your FD investment such that the interest earnings are split into two years. For instance, if your fixed deposit tenure is 12 months and your expected earnings are ₹ 40,000, you could start investing after April so that the interest is split into two financial years, and your interest is exempt from TDS.

Splitting Your FD

If you are an individual with a HUF (Hindu Undivided Family) identity, you could split your FD investment into two – one under your personal identity and one under your HUF identity so that the interest earnings are split.

Rules for TDS on FD

Below are the TDS rules for FDs in a nutshell.

  • TDS on bank FD is applied if your interest income is more than ₹ 40,000 in a financial year (₹ 50,000 for senior citizens).
  • If your income is not taxable, you can apply for a TDS exemption. 
  • Interest income from tax-saving FDs is also taxable.
  • If joint account holders hold the FD, the primary account holder will suffer TDS, and the secondary account holder will not suffer TDS deductions.

Also Read: Tax-Saver FDs in India: Get Tax Deductions Under Section 80C

Final Thoughts

FDs are a safe investment option that offer low-risk returns. The government has also encouraged saving in long-term FDs by providing a tax deduction under section 80C. The pointers mentioned above will ensure you get the best out of your FD investment. 

Frequently Asked Questions

What is the TDS rate for FD if I haven’t linked my PAN card with the FD account?

The TDS rate for Indian residents with a PAN card is 10%. If you don’t have a PAN card or the PAN is not linked to the FD account, the TDS amount doubles to 20%. Hence, if you don’t have a PAN card, it is advisable to get one; if you do, you must link it to the FD.

Is tax-saver FD free from TDS?

Tax-saver FD is not free from TDS. Instead, it gives you a tax deduction on the amount you invest in FD for up to ₹ 1.5 lakh. For instance, if your taxable income is ₹ 6 lakh and you invest ₹ 1.5 lakh in an FD, your taxable income could be reduced to ₹ 4.5 lakh after claiming a deduction under section 80C of the IT Act.

How can I check TDS on my FD?

You can check the tax deducted by logging into Form 26AS online. You can also check the FD report which is generally provided by banks. You may also directly contact the bank for any further assistance.

Credit Principal at Wint Wealth

Vaibhav is Chartered Accountant by profession, having experience of 4+ years in banking & finance sector.
Since past one year associated with Wint Wealth as Credit Principal. Previously worked with Northern Arc Capital for 2 years in FI-Credit Team and AU Small Finance Bank for 1 year in LAP-Credit Team.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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