The complete guide about TDS on FD and Tax Saving Fixed Deposits is here. Read the complete article to know the TDS Rates for a Fixed Deposit of Individual, HUF, & Corporate body, Nil Deduction of TDS on Fixed Deposit, etc.
TDS on FD
You can earn a higher rate of interest with the Fixed Deposit than regular savings account. The interest from the Fixed Deposits is not tax free. It is also a source of income on which the the tax is levied as per the Income Tax Slabs of the person earning the interest. The income tax authorities have given direction to financial institution and banks that are issuing fixed deposits to deduct TDS on fixed deposits if they qualify.
The Income Tax slab rate is different for different taxpayers, so the Tax on FD is also different for different assessees depending on the total income earned by the assessee during that financial year. The Income Tax Slab vary from 0% to 30%.
When do the bank deduct TDS on FD?
The bank will deduct TDS when the total interest came from all your fixed deposits in a bank exceeds Rs. 10,000 in a financial year. The limit of Rs. 10,000 is determined at the bank branch level per individual. The TDS on FD is applicable even if a fixed deposit is in the name of minor. In such case the credit for TDS can be claimed by a person who is managing the minor’s income. The bank checks for TDS eligibility whenever it pays an interest on your fixed deposits. If eligible, TDS on Fixed Deposit is deducted. TDS is also deducted on the interest arised (but not yet paid) at the end of the Financial Year (i.e. 31st March).
TDS Rates for a Fixed Deposit
For Individual and HUF:
If the fixed deposit holder is an individual and HUF and if the interest during the financil year is up to Rs. 10,000 (i.e FD payment is up to 10 Lakhs), then TDS will be deducted at a rate of 10%. Along with this, there is an education cess @ 3% which takes the total deduction to the rate of 10.3%.
If the fixed deposit holder is an Individual or HUF (Hindu Undivided Family) and if the payments equal to 10 lakhs or more, then the TDS rate is 10%. Along with this, there is a educational cess of 3% and surcharge of 10% which takes the total deduction to the rate of 11.3%.
For corporate body:
If the fixed deposit holder is a corporate body and if the payment is up to 1 crore, then TDS will be deducted at a rate of 20%. Along with this, there is an education cess of 3% which takes the total deduction to the rate of 20.6%.
Other important points to remember:
- If your total tax liability is more than the TDS on Fixed Deposit that has been deducted you would be required to pay the tax shortage.
- If your total tax liability is less than the TDS on FD, you can apply for TDS Refund.
- Under Section 206AA, if the interest payable by the bank is more than Rs. 10,000 and if the taxpayer have not submitted the PAN Number then TDS at the rate of 20% would be deducted in this case. This provision is to encourage people to submit their PAN Card Number to the bank or else the TDS on FD would be deducted at a higher rate. If you don’t have a PAN Card, you can apply for a PAN Card online.
Nil Deduction of TDS on Fixed Deposit
In some cases, the total tax liability of a person during a year is Nil and TDS is being deducted by the Bank because the interest on FD is exceeding Rs. 10,000. In such cases, the assessee has to request for TDS refund at the time of filing of IT returns.
This has became burdensome for the taxpayer to claim the refund of TDS after being deducted and deposited with the government. To avoid such difficulties, the government has introduced Form 15G and Form 15H. Under Section 197 A if you furnish a declaration in Form 15H/15G to the bank for Lower/Nil deduction of TDS. In such cases, the TDS would be deducted at the lower rates as specified in these declaration forms.
The validity of such declaration forms (Form 15G/15H) is only 1 year. A new form is required to be submitted every year for lower/nil deduction of TDS on FD.
Tax Saving Fixed Deposit
In the year 2006, the Finance Ministry has announced that all Fixed Deposits (FD’s) with a maturity of not less than 5 years shall be eligible for the deduction under Section 80C of the IT Act. Such FD is known as Tax Saving Fixed Deposit which is introduced to boost the declining interest in fixed deposits of retail investors.
|Minimum Investment:||Rs. 100 and in multiple thereof|
|Maximum Investment:||Rs. 1,50,000 (Increased from Rs 1 Lakh to Rs. 1.5 Lakh)|
|Deduction available to:||Individual, HUF|
|Premature Withdrawl:||Not Available|
|Loan Facility against this FD:||Not Available|
|Interest Rate:||As offered by the Bank from time to time|
|Tax on Interest earned:||As per the Income Tax Slab Rates of the Individual|
|TDS on Interest:||At the rate of 10%|
- You can reduce the tax paid on the interest earned from the fixed deposits. You can open fixed deposit in multiple names, like your spouse, parents, etc. The interest will be calculated as per their income and the tax slab rates accordingly.
For example, if you want to open a FD for an amount of Rs. 1,50,000 which means you need to pay TDS of almost Rs. 15,000. But if you took a Rs. 50,000 each fixed deposit in your name, parent’s name, and spouse’s name, then you will be required to pay a TDS of Rs. 5,000 and the Tax on FD will end up with no TDS since a bank branch can not charge TDS for amount lesser than Rs. 10, 000.
- If you have submitted the Form 15G/Form 15H, then it will ensure that there is no TDS deducted since your income doesn’t go over the limit set for taxes payable.
- You can avoid TDS or reduce the tax paid on the interest earned from the fixed deposits by opening fixed deposits in different branches and different banks.
For example, if you want to open a FD in one bank for an amount of Rs. 1, 00, 000 then you need to pay TDS of almost Rs. 10,000. But if you took a Rs. 50, 000 each fixed deposit in 2 different banks in your name then no TDS would be deducted since the interest earned would be Rs. 5000 each at 10% which means the bank won’t charge you TDS.
- You could also make sure you invest your money in a FD in such way that TDS can be avoided on Fixed Deposit.
For example, if you want to open a fixed deposit for a 12 month or 1 year period start the fixed deposit close to the financial year ending like in Aug, Sept, Oct, etc., then this will end up splitting the tax between two financial years and you can again avoid TDS on FD.
You will be charged TDS on tax-saving fixed deposit because the rules for charging tax are the same for all fixed deposits. The only difference between tax-saving fixed deposits and fixed deposits are that the amount saved in the tax-saving fixed deposits is exempted from tax under the section 80C.