In India, fixed deposit is one of the most popular investment options that help individuals to generate a fixed stream of income without exposing the capital to market fluctuations. The fact that interest accrued on fixed deposits comes under the purview of the Income Tax Act of India 1961 makes it liable for taxation. The rate of taxation is fixed as per one’s applicable tax slab.
For instance, the interest accrued on fixed deposit attracts TDS, if the same exceeds a given threshold. Ideally, such a tax is deducted as per the norms and rate set by the Income Tax Department of India.
How is Interest Income Taxed?
Interest income from fixed deposits is fully taxable. Add it to your total income and get taxed at slab rates applicable to your total income. It is to be reported under the head ‘Income from Other Sources’ in your Income Tax Return.
Banks deduct tax at source at the time of crediting interest to your account if the amount of interest is beyond Rs.40,000 for individuals other than a senior citizen (in the case of senior citizen, the threshold is Rs.50,000).
Hence it should be remembered that the TDS is deducted at the time of credit of interest and not when the FD matures.
What is TDS on Fixed Deposit?
Essentially, it is a form of tax that is subtracted at the source from the interest earnings accrued on a fixed deposit account. However, TDS is deducted only when it comes under the taxable category. Regardless of where an individual has opened an FD account, the interest on FD is taxable.
One must note that earnings generated from a tax-saving FD are also subject to TDS. In case of joint FD account holders, TDS on FD interest is deducted on the basis of the primary account holder’s PAN. It means that the secondary account holder is not responsible for deductions related to TDS on FD.
Who Deducts TDS on Fixed Deposit?
Financial institutions or banks offering the scheme are responsible for deducting TDS on fixed deposit interest. Generally, the TDS amount is deducted automatically at the end of every financial year.
TDS Rate on FD – In a Nutshell
The TDS rate on FD varies for different customers and depends on factors like – FD holder’s age, tax slab and PAN status.
Ideally, TDS on FD is divided into these categories –
- Indian Residents – TDS rate when PAN is shared
From the financial year 2020-2021, resident Indians will be liable to pay 7.5℅ TDS on the interest earned through their fixed deposits. It will be applicable if at any time the accrued earnings exceed Rs. 5,000.
- Indian Residents and NRIs – TDS when PAN is not shared
In this case, resident Indians have to pay a TDS on fixed deposit earnings at a rate of 20%. On the other hand, NRIs have to pay 30% + applicable surcharge and cess.
This table below offers a fair idea of the current TDS on FD –
| Fixed deposit type | Fixed deposit rate |
| Fixed deposit | 10% (It has been changed to 7.5% since May 2020) |
| Fixed deposit without PAN card | 20% |
| NRO FD | 30% |
| NRE FD | Free of tax |
| FCNR FD | Tax-free |
How is TDS Computed on FD?
Suppose Lisa has fixed deposit accounts of Rs. 3 lakh each with an NBFC and a bank. Each account fetches interest at the rate of 10% for 4 years.
As per calculation, the total interest earned collectively on both FD amounts to Rs. 60000 each year. So, the internet earned on the FDs is equivalent to –
= Rs. 60000×4
= Rs. 240000
As per tax norms, the TDS on FD interest will be liable for taxation at the rate of 7.5%
So, 7.5% of Rs. 60000
Rs. 4500
To avoid manual calculation, fixed deposit holders can also use TDS calculator online and find out the tax amount in a few steps. Doing so, they will simplify the calculation process and also minimise the risk of making any manual error.
What is the Exemption Limit for TDS Deduction on FD?
These pointers enumerate the exemption limit for different entities –
- For company fixed deposit
In a financial year, the deduction limit is set at Rs. 5000.
- Income bracket
Individuals whose total taxable income is lower than Rs. 2.5 lakh are exempted from paying TDS on FD.
- For senior citizens
The TDS exemption limit for senior citizens in a financial year is Rs. 5000.
FAQs
What is TDS on bank deposit and interest?
TDS (Tax Deducted at Source) on bank deposit and interest refers to the tax that banks deduct on the interest earned by individuals from fixed deposits (FDs), recurring deposits (RDs), and savings accounts if the interest amount exceeds a specified limit.
What is the current TDS rate on bank interest?
As per Section 194A of the Income Tax Act, banks deduct TDS at the rate of 10% on interest earned if the total interest exceeds Rs. 40,000 in a financial year. For senior citizens, the threshold is Rs. 50,000.