TDS on Fixed Deposits

TDS on Fixed Deposits - An Overview

Tax Deducted at Source (TDS) is a system of tax collection in India where the payer of the income is required to deduct tax at the time of making the payment. TDS is applicable on various types of income, including interest on fixed deposits (FDs).

Benefits of TDS on FD

The benefits of TDS on FD are as follows:

• Reduced tax liability: TDS helps to reduce the tax liability of the taxpayer by deducting the tax at source. This means that the taxpayer does not have to pay the entire tax amount at once when filing their income tax returns.
• Compliance with the law: TDS is a mandatory requirement under the Income Tax Act, 1961. By deducting TDS on FD interest, banks and financial institutions are complying with the law.
• Curbs tax evasion: TDS helps to curb tax evasion by deducting the tax at source. This makes it difficult for taxpayers to evade taxes.
• Easy tax filing: TDS on FD makes it easier for taxpayers to file their income tax returns. The taxpayer does not have to calculate the tax on the FD interest, as it has already been deducted at source.
• Transparency: TDS on FD ensures transparency in tax collection. The taxpayer can see how much tax has been deducted on their FD interest in their Form 26AS.
• Convenience: TDS on FD is convenient for both the taxpayer and the bank or financial institution. The taxpayer does not have to pay the tax separately, and the bank or financial institution does not have to chase the taxpayer for the tax payment.

Documents required for TDS on FD

• PAN card
• Form 15G (for taxpayers below the age of 60)
• Form 15H (for senior citizens)

Eligibility criteria for TDS on FD

TDS is applicable on FD interest if the interest amount exceeds the following limits in a financial year:

• ₹40,000 for individuals below the age of 60
• ₹50,000 for senior citizens

How to avoid TDS on FD interest

Taxpayers can avoid TDS deduction on FD interest by submitting Form 15G or Form 15H to their bank or financial institution. Form 15G is for taxpayers below the age of 60, and Form 15H is for senior citizens.

Understanding TDS in relation to FDs

When a bank or financial institution pays interest on an FD, it is required to deduct TDS at 10% if the interest amount exceeds ₹40,000 in a financial year for individuals below the age of 60 and ₹ 50,000 in a financial year for senior citizens.

• Rate of TDS on FD Interest
• The rate of TDS on FD interest is 10%.
• Interest from FD for senior citizens
• Senior citizens are allowed a higher deduction limit of Rs. 50,000 for TDS on FD interest.
• TDS on FD Calculation
• The TDS on FD interest is calculated on the basis of the following formula:
• TDS = (Interest amount * TDS rate)

Guidelines for Managing TDS on the FD Interest

To avoid TDS deduction on FD interest, taxpayers can submit Form 15G or Form 15H to their bank or financial institution. Form 15G is for taxpayers below the age of 60, and Form 15H is for senior citizens.

Tax Benefits of Investing in Fixed Deposits

Fixed deposits are a popular investment option in India due to their low risk and guaranteed returns. Additionally, fixed deposits offer tax benefits under Section 80C of the Income Tax Act, 1961. Taxpayers can claim a deduction of up to Rs. 1.5 lakh on their investments in fixed deposits under Section 80C.

Ways to Reduce or Save Tax on Fixed Deposits

There are a few ways to reduce or save tax on fixed deposits:

• Submit Form 15G or Form 15H: This will avoid TDS deduction on FD interest.
• Invest in tax-saving fixed deposits: Tax-saving fixed deposits offer tax benefits under Section 80C of the Income Tax Act, 1961.
• Invest in joint names: If you are investing in an FD with your spouse, you can split the interest amount equally to reduce your tax liability.
• Ladder your investments: You can ladder your FD investments by investing in different maturities to reduce your tax liability in each financial year

Why Vakilsearch?

The main goal of Vakilsearch is to make the legal process much easier than ever. Our team of legal experts can provide a complete solution when it comes to TDS related queries. Talk to our tax experts and business authorities to resolve all your queries on TDS. We have the best customer score and have helped more than 1000 companies every month when it comes to legal aspects. Nearly 10% of the companies in India or our clients. What are you waiting for to get in touch with our experts right away!