Fixed Deposit interest is completely taxable above the threshold limit. This article outlines the basics of TDS on FD and its calculation on various categories of income levels.
Introduction
In India, various investment options such as gold, mutual funds, and stocks offer reasonable returns over time. Among these, fixed deposits (FDs) are a popular choice due to their simplicity. To invest in an FD, individuals need to deposit a specified amount in a bank for a fixed tenure at an agreed-upon interest rate. Lets have a look at TDS Rate on FD.
However, it’s essential to note that the interest earned from FDs is subject to TDS (Tax Deducted at Source) as per the provisions of the Income Tax Act of India 1961. This means that TDS is deducted at the source if the interest earned on an FD exceeds a specified threshold.
| In the financial year 2021–2022, the TDS rate for interest earned on fixed deposits is set at 10% for Indian residents. However, for Non-Resident Indians (NRIs), the TDS rate is higher, standing at 30%, and may also include applicable surcharges and taxes on the interest accrued from fixed deposits. |
TDS on Fixed Deposits
The Tax Deducted at Source (TDS) is collected by the Income Tax Department of the Indian Government directly from the source of income, in this case, fixed deposits. The deduction is made at the point of origin, which is when the money is deposited into the bank account for FDs, rather than waiting until the FD matures. Thereafter, the entity deducting the tax (deductor) provides a Form 26A or TDS certificate to the individual.
| TDS is applicable to earnings from tax-saving FDs as well. |
In the case of joint FD account holders, the calculation of TDS on FD interest is based on the PAN of the primary account holder, relieving the secondary account holder of any responsibility for TDS on FD-related deductions.
Conditions for TDS Waiver for Indian Citizens
Indian residents can request a waiver of Tax Deducted at Source (TDS) on the interest earned from fixed deposits. To avail of this exemption, individuals can submit either Form 15G or Form 15H (depending on their age) to the financial institution at the beginning of the fiscal year.
These forms should include a self-declaration stating that the estimated total income for that financial year is below the taxable limit. And since there is no taxable income, no TDS will be applied to the FD interest.
| Individuals with total income below the minimum income tax bracket may also be eligible for a refund of any TDS deducted. |
Applying for TDS Waiver
To apply for a TDS waiver in an FD, Indian citizens need to determine their eligibility and obtain a certificate under the relevant provision of the Income Tax law in India. Subsequently, they can submit an application using Form 13 under Rule 28 of the Income Tax Rules of 1962.
The assessing officer will review the application and make a decision on granting the TDS waiver. This entire process is typically completed within a month of receiving the application.
Entrust the accurate and timely filing of TDS returns with vakilsearch experts to ensure hassle-free compliance with tax regulations.
TDS Rate for the FY 2023-24
For the fiscal year 2023-24, specific categories of income, as defined by the Government of India, have prescribed TDS rates.
For example:
– Under section 194G, which encompasses income or commission earned from the sale of lottery tickets, the TDS rate is applicable 5% on the total income.
– Section 194H, covering commission earned through brokerage, has a TDS rate of 5% applicable on the total income.
– Rent payments for buildings or land are subject to a 10% TDS deduction as per directives.
– If an individual rents out plants and machinery, the applicable TDS rate is 2% of the total income.
– Under section 194O, when selling through e-commerce ventures, the business firm is subject to a TDS amount of 1% on the income tax.
TDS Rates Applicable to Non-Resident Indian
TDS rates also apply to non-resident Indians. As per section 194N, when withdrawing cash from the bank without filing an ITR, 2% of the total income tax amount can be deducted as TDS.
TDS Rates Applicable to Senior Citizens
For senior citizens, as per section 194P, there is a provision for tax deduction at source, but the deducted amount can vary based on age brackets, as suggested by expert tax consultants.
TDS Rates Applicable for the Resident of India
TDS rates for residents in India are applicable based on specific income categories and amounts paid or transferred, as outlined under section 195. Taxpayers in India, irrespective of their status (individuals, Hindu Undivided Families, or corporates), fall within the applicable tax slabs and are responsible for TDS deduction as and when applicable.
| Making payments to or receiving payments from Non-Resident Indians (NRIs) can also impact the tax burden on individuals. |
TDS Rates on FD – Frequently Asked Questions
What is a fixed deposit?
A fixed deposit is a type of investment offered by banks and financial institutions in which the investor deposits a lump sum amount for a fixed period of time at a fixed rate of interest.
What is TDS?
TDS stands for Tax Deducted at Source. It is a tax collected by the government at the time of payment of income to the recipient. In the case of fixed deposits, TDS is deducted by the bank on the interest earned by the investor.
What is the TDS rate on fixed deposits?
The TDS rate on fixed deposits is 10% if the interest earned exceeds Rs. 40,000 in a financial year. For senior citizens, the TDS rate is 10% if the interest earned exceeds Rs. 50,000 in a financial year.
Can TDS on fixed deposits be avoided?
TDS on fixed deposits can be avoided by submitting Form 15G or Form 15H to the bank. These forms declare that the investor’s income is below the taxable limit and hence, TDS should not be deducted.
What is the penalty for non-payment of TDS?
If TDS is not paid or is paid late, a penalty of 1% per month is levied on the outstanding amount until the TDS is paid.
What is the maturity period of fixed deposits?
The maturity period of fixed deposits can range from 7 days to 10 years, depending on the investor’s preference.
What happens if a fixed deposit is withdrawn before maturity?
If a fixed deposit is withdrawn before maturity, the investor may have to pay a penalty or lose out on the interest earned. The penalty and the amount of interest lost may vary depending on the bank’s policy.
Conclusion
Efficiently maximising TDS on FD interest can help boost savings and lower tax liability. For those unable to avoid TDS on their FD accounts, timely filing of ITR is essential to prevent penalties or other tax-related consequences.
For assistance with ITR and TDS return filing, seek help from the experts at Vakilsearch.
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