TDS on FD and RD

TDS on Fixed Deposit and Recurring Deposit - An Overview

A recurring deposit is one of the best investment options for people who are first-time investors and want to put their money in a secure investment. Any bank can accept recurring deposits, which are free of market risk. Any amount of money may be deposited monthly, and banks assign an annual interest rate that will be accrued and given to the account holder on a quarterly or half-yearly basis.

You must have a savings account with the bank whose recurring deposit plan you have chosen to open a recurring deposit account with that bank. You can put the cash in your savings account, from which the bank will withdraw money each month and transfer it to the account for recurring deposits.

What is a Fixed Deposit?

A fixed deposit (FD) is a financial instrument offered by banks and other financial institutions where you deposit a lump sum of money for a fixed period of time (known as the tenure) and earn a fixed interest rate. The interest is paid out periodically, either monthly, quarterly, or annually.

Features of Fixed Deposits

• Amount of money you can deposit: The minimum amount you can deposit in a fixed deposit varies from bank to bank. The maximum amount you can deposit is also capped by the RBI.
• Tenure: The tenure of a fixed deposit can be anywhere from 7 days to 10 years. The longer the tenure, the higher the interest rate.
• Interest rate: The interest rate offered on fixed deposits varies from bank to bank. The interest rate is usually higher for senior citizens.
• Tax implications: The interest earned on fixed deposits is taxable. However, there are certain schemes that offer tax benefits under Section 80C of the Income Tax Act.

Benefits of Investing in Fixed Deposits

• Safety: Fixed deposits are considered a safe investment option as the principal amount is guaranteed by the bank or financial institution.
• Guaranteed returns: The interest rate on fixed deposits is fixed for the tenure, so you know how much you will earn on your investment.
• Liquidity: Fixed deposits can be easily liquidated by withdrawing the money before the end of the tenure, but there may be a penalty for early withdrawal.
• Tax benefits: The interest earned on fixed deposits is taxable, but there are certain schemes that offer tax benefits under Section 80C of the Income Tax Act.

Factors to Consider Before Investing in Fixed Deposits

• Your financial goals: Fixed deposits are a good option for investors who want to save money for a specific goal, such as a child's education or retirement. If you do not have a specific goal, then you may want to consider other investment options that offer higher returns.
• The interest rate: The interest rate offered by different banks and financial institutions may vary. So, it is important to compare the interest rates before investing.
• The tenure: The tenure of a fixed deposit can be anywhere from 7 days to 10 years. The longer the tenure, the higher the interest rate.
• The penalty for early withdrawal: If you withdraw the money from your FD before the end of the tenure, you may have to pay a penalty. So, it is important to check the penalty amount before investing.

How to Reduce or Save Tax on Fixed Deposits

• Submit Form 15G or 15H: If your total income for the financial year is below a certain threshold, you can submit Form 15G or 15H to the bank, which will exempt you from TDS (tax deducted at source) on the interest earned on your FD.
• Invest in a tax-saving FD: There are special FD schemes that offer tax benefits under Section 80C of the Income Tax Act. You can invest up to Rs. 1.5 lakh in these schemes in a financial year and claim a deduction from your taxable income.
• Open an FD in the name of a senior citizen: Senior citizens are eligible for a higher interest rate on FDs. The interest earned on an FD in the name of a senior citizen is also tax-free up to a certain limit.

Interest from FDs for Senior Citizens

The interest earned on FDs in the name of senior citizens is tax-free up to a certain limit. For the financial year 2022-23, the tax-free limit is Rs. 50,000.

Facts to Note About TDS on Fixed Deposits

If the bank makes a TDS Deduction, but the person is only liable for paying a lower rate of tax, you can recover the money as a refund by completing an income tax return.

The person must pay TDS in the form of a self-assessment tax if they fall under one of the higher income tax slab rates, such as 20% or 30%. You can also use a TDS calculator to complete the calculation.

Instead of when they pay the interest on the deposit, the bank calculates the TDS at that time. Tax is not paid at the time of the fixed deposit but rather annually on the interest income. Utilise the FD Calculator to determine the FD maturity amount.

Advantages of TDS on FD and RD

Fixed Deposits

• Easy Availability: The fixed deposit programme is available to all banks in the public and private sectors.
• Assured Returns: FD offers higher interest rates than a savings account.
• Tax Exemption: The first monetary worth or sum that the deposit insurance deposits in the FD is exempt from taxation, as stated in Section 80C of the Income Tax Act.

Automatic Renewal

• FDs can be renewed automatically
• Partial withdrawal provisions are allowed
• FDs can be opened at any time, deposit any amount, and keep secure
• Additionally, an FC can be used to apply for a loan
• Fixed deposits are open to everyone and are negotiable.

Recurring Deposits

• There is no cost if you miss a month
• Greater interest rate
• Start with at least ₹2000 each month
• Ideal for short-term objectives
• streamlined documentation

Tips to Save Tax on Fixed Deposits

You may file form 15G/15H if your annual gross revenue is less than ₹2.5 lakhs. If your income does not fall inside taxable slabs and you are not required to pay taxes, doing this will ensure that the bank does not request your TDS return.

Instead of a bank, you can open an FD at a post office branch. Post office fixed deposits do not incur any TDS.

You can invest or spend money in the names of relatives, such as parents or spouses. The tax on interest from fixed deposits is calculated individually for each taxpayer, and the amount of tax due is based on the applicable slab rate.

For example, If you put ₹300,000 in fixed deposits that pay 10% interest rate, you will earn ₹30,000 in interest and ₹3,000 in TDS.

Instead of depositing the entire sum in your name, you can deposit ₹75,000 in the names of your mother, father, spouse, and yourself (adding up to ₹3 lakh). The interest earned on each FD is then ₹7,500. Since this is less than ₹10,000, no TDS would be withheld.

The Income Tax Act of 1961's clubbing provisions, which combine your income with that of your spouse or other family members, may apply if you do this. Consult with the CA beforehand

Starting fixed deposits in various branches and banks might help you to reduce or avoid paying taxes.

Again, for instance, if the interest rate is 10% and you want to invest or spend ₹2,00,000, you will earn ₹20,000 in interest income. Your bank will deduct TDS from this amount because it exceeds ₹10,000. However, if you split up this FD among three other banks, you'll get a ₹3,333 investment in each one. Each amount (₹3,333) is below the ₹10,000 barriers, hence the banks won't deduct TDS on it.

Features of TDS on FD

Features of Recurring Deposits in India

• One can start a recurring deposit with as little as ₹500. It is a tactic that is cost-effective
• The tenure of the recurring deposit is six months to ten years, with a six-month minimum
• In every other savings plan, the interest rate that applies to recurring deposits is higher
• 80 to 90% of the return is provided by recurring deposits
• Upon maturity, the money is credited to the bank account.

Documents Required for FD & RD Deposits

Individual Fixed Deposit

The following is the paperwork required to open a personal fixed deposit:

• One most recent passport photo
• Photocopy of an address proof that has been self-attested, such as a voter ID or an Aadhar card
• PAN card self-attested copy

Non-individual Fixed Deposit

PNB Housing Finance Limited accepts non-individual fixed deposits from a variety of business categories, including:

• Trusts, organisation and groups
• Cooperative Banks.
• Cooperative Societies
• Partnership Firm Registration
• Private Limited Company Registration
• Public limited company

Documents Needed to Open Recurring Deposit

• Proof of identity
• PAN details
• Passport information
• Voter ID card
• Ration card
• Government ID
• Senior citizen ID
• Proof of address

Why Vakilsearch?

RD and FD are excellent choices for earning interest guaranteed over specific periods. To determine which option is best for you. Vakilsearch can complete the whole process without much hassle. Always use an online FD/RD calculator to get the information right. Some alternatives offer stable returns and additional perks, such as ULIPs and endowment funds. Compare them as well, then invest wisely by diversifying your holdings. For more queries, get in touch with our experts!