TDS on FD Interest: Calculate, Save With Forms 15G & 15H, Sections Implemented

10 min read • Updated 5 October 2023
Written by Vaibhav Khandelwal
Tax on FD Interest: Everything you need to know

FDs are well-known for their predictable yields and low risks in India and are popular investment vehicles. Banks and other financial organisations offer FDs, allowing investors to earn interest over a certain period. Remembering the tax repercussions, particularly the Tax Deducted at Source (TDS) on FD interest is important. TDS on FD is essentially a way for the government to take tax straight from the source of income.

Banks specifically deduct the TDS on FD interest while dealing with FDs and send it to the government. As there are circumstances under sections 197A and 194A where one could qualify for TDS exemption, understanding these regulations becomes essential.

The specifics of TDS deduction on FD are covered in this article, including the current TDS rates, using a TDS calculator on FD, and figuring out the FD interest TDS limit. By the time it’s over, you’ll know the answers to inquiries like “How much is TDS on FD?” and “Am I eligible for exemptions?”

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

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

Who Deducts TDS on Fixed Deposit?

The bank or financial institution where the fixed deposit (FD) is housed is responsible for deducting TDS (Tax Deducted at Source) from the FD. The bank or financial institution must deduct TDS before crediting the interest to your account when the interest earned on your FD exceeds the threshold limit set by the Income Tax Act in a financial year.

Then after, the money is deposited with the government. A TDS certificate, frequently referred to as Form 16A, documenting the TDS amount deducted and deposited on your behalf is given to you by the bank or institution.

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.

What is the Exemption Limit for TDS Deduction on FD?

According to the prevailing income tax regulations, the threshold for TDS deduction on Fixed Deposits (FD) stands at Rs. 40,000 for regular individuals. For senior citizens, this limit is raised to Rs. 50,000. It’s imperative to be aware of these specifics to manage one’s investments and tax obligations effectively.

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 it doesn’t fall in a tax slab, i.e., In accordance with the Old Tax Regime, 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 ₹ 3,00,000, 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. However, you still have to pay tax on interest income if it exceeds the basic exemption limit.

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.

How to Pay TDS on FD

As an account holder or the recipient of the FD interest, you do not directly pay TDS. The tax amount is deducted at the source through an automatic process. Here are two of the methods as to how TDS is paid and returned through the responsible institutions:

Automatic Deduction: The TDS amount is directly deducted by the bank or financial institution through an automated process after the account balance crosses a particular threshold in a financial year.

Income-Tax Return: In case the institution has deducted TDS over the limit you were originally liable to pay for, you can get your TDS back after filing your Income Tax returns.

How to Claim TDS Refund

TDS refund can be complicated without the right blueprint to guide you through it. Let’s take a look at a simplified version of how you can claim your TDS refund.

  1. Filing and Verifying ITR:
    • File your Income Tax Return (ITR) online through the official Income Tax Department website. Ensure you input the TDS details from your certificates (Form 16 for salaried and Form 16A for other incomes) and verify that they match with Form 26AS.
    • After submission, e-verify your ITR. This can be done using Aadhaar OTP, net banking, or by mailing a signed ITR-V to the processing centre in Bengaluru.
  2. Calculate Tax and Refund:
    • The online system will compute your total tax due after you input all incomes and deductions. If the TDS cut from your income is more than what’s due, you’ll see a ‘Refund’ amount.
  3. Refund Processing and Tracking:
    • Once the Income Tax Department processes and approves your ITR, your refund will be directly credited to your bank account. Ensure your bank details in the ITR are correct.
    • You can monitor the refund status on the e-filing site under ‘My Account’ > ‘Refund/Demand Status’.
  4. Receiving Your Refund:
    • Typically, refunds are transferred to your bank account. In some instances, you might get a cheque.

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).
  • You can apply for a TDS exemption if your income is not taxable. 
  • 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.

Can I get FD interest without TDS in case my income is below the taxable limit?

Yes, if your income is below the taxable limit, you can submit Form 15G (or 15H for senior citizens) to the bank to receive FD interest without TDS deduction.

Can I claim a deduction for the interest income earned from FDs?

While FD interest is fully taxable, you can claim a deduction under Section 80TTA (up to ₹10,000) or 80TTB (for senior citizens) on interest from savings accounts.

Can TDS on FD be refunded?

Yes, if excess TDS has been deducted compared to your actual tax liability, you can claim a TDS refund by filing your Income Tax Return.

How much amount of FD is tax free?

There’s no tax-free amount for FD itself, but interest earned up to ₹40,000 (₹50,000 for senior citizens) doesn’t attract TDS, though it’s taxable as per slab rates.

Can senior citizens avoid paying TDS on FD interest?

Senior citizens can avoid TDS on FD interest by submitting Form 15H, provided their overall income is below the taxable threshold.

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Vaibhav Khandelwal

Credit Principal
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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