TDS on Fixed Deposits (FDs)

1. For Indian Residents - In the financial year 2021-22, the TDS on interest earned by Indian residents on fixed deposits would be 10%.

2. For NRIs - NRIs must pay TDS of 30% plus relevant surcharges and taxes on interest generated on fixed deposits.

How TDS calculation is done for an FD

To understand how TDS is calculated, let's take a look at the following example:

If Sumathi has two fixed deposits for Rs.1 lakh each and receives interest at a rate of 10% p.a. for 4 years, she will receive Rs.20,000 in interest from both FDs combined. In these circumstances, 10% of the entire interest income will be taxed as TDS. Sumathi will therefore be required to pay TDS of Rs.2000.

TDS Waiver for Indian Residents

Residents of India may request to have the TDS on fixed deposit interest waived. To take advantage of this exemption, send Form 15G or Form 15H (depending on your age) to your financier at the beginning of the fiscal year. A self-declaration that the tax on your anticipated total income for the financial year is zero must be included in these forms. There will be no TDS applied to the interest generated on your FD because you have no taxable income. If your total income is below the minimal income tax bracket, you may also be eligible for a refund of any TDS that was deducted.

How to save TDS on FD

There are many ways to save TDS on your fixed deposit such as:

1. Post office fixed deposit - Instead of a bank, you can open your FD at a post office location. Post office fixed deposits are not subject to TDS. 

1. Submit form 15H/15G - You can file or use form 15G/15H if your annual income is less than Rs.2.5 lakh. Since your income is not taxable and you are not required to pay taxes, doing this will ensure that the bank does not collect TDS from your payment. 

1. Invest in Family Members' Names - You can invest in family members' names, such as spouses, parents, etc. An individual's tax on interest from fixed deposits is computed, and the amount of tax they pay is determined by the slab rate they fall under. 

1. FDs in different banks - You can cut or avoid paying taxes if you open fixed deposits at many branches and institutions. 

Things to Remember While Investing in Tax Saving Fixed Deposits 

Here are a few points to remember while investing in tax saving fixed deposits 

1. You can request a refund from the Income Tax Department in your income tax return if the bank deducted TDS on your FD but you are only responsible for a lower rate of tax. 

1. Instead of when they pay the interest on the deposit, the banks determine TDS at that time. As a result, the tax on interest income should be paid each year rather than when the FD matures. 

1. You will be required to pay the excess tax over the TDS charged as self-assessment tax if you fall within the higher income tax slab rates of 20% and 30%. 

Exemption Limit for TDS

There are different exemption limits for different types of TDS. They are as given below:

1. No TDS if total taxable income is less than Rs.2.5 lakh
2. Company FDs - TDS deduction limit is Rs.5,000 in a financial year and for senior citizens

How to Pay TDS

TDS can be paid to the Central Government in the following ways:

1. At authorized bank branches by submitting Challan 281
2. For corporate assesses and assesses other than company, for whom Section 44AB of the Income Tax Act, 1961, is applicable, e-payment is mandatory

Rules of TDS on FDs

Given below are the major rules about TDS on FDs that it is important to know about:

1. The bank will estimate your interest income on FDs for the year from all the FD accounts held with the bank
2. The fixed deposit interest income is calculated as per your income tax slab rates
3. Those in the highest income tax slab will have to pay tax in addition to the TDS
4. Form 15G is the form that has to be submitted by the general public for claiming TDS exemption if income is below the taxable limit
5. Form 15H is the form that senior citizens have to submit for TDS exemption
6. When the aggregate interest from all fixed deposits exceeds Rs.40,000 in a financial year, TDS is taken by banks and the post office