Meaning of TDS on Fixed Deposit Interest
- TDS stands for Tax Deducted at Source, a system where banks deduct tax before crediting interest.
- It applies to the interest earned on fixed deposits maintained with banks or financial institutions.
- The deducted amount is deposited with the Income Tax Department on the depositor’s behalf.
- TDS ensures timely tax collection and links income to PAN-based records.
- The deducted tax is reflected in the depositor’s Form 26AS.
Threshold for TDS Deduction
- TDS is deducted only if the interest exceeds ₹40,000 in a financial year.
- For senior citizens, the threshold is higher at ₹50,000 per year.
- If interest earned remains below the threshold, no TDS is deducted.
- These limits apply per bank, per PAN, not per deposit.
- Interest from recurring deposits is also included in the threshold calculation.
Applicable TDS Rates
- The standard TDS rate is 10% if the depositor has submitted a valid PAN.
- If PAN is not provided, TDS is deducted at a higher rate of 20%.
- Surcharge and cess are not added to the TDS on bank FDs.
- The deduction is automatic and based on estimated annual interest.
- TDS is applied on accrued interest, not just on the amount paid out.
Avoiding TDS Deduction
- Individuals whose total income is below the taxable limit can submit Form 15G.
- Senior citizens can use Form 15H for the same purpose.
- These forms must be submitted at the beginning of the financial year.
- If accepted, the bank will not deduct TDS on the interest amount.
- False declaration can lead to penalty or prosecution under tax laws.
Claiming TDS While Filing ITR
- TDS deducted by the bank can be adjusted against final tax liability in the Income Tax Return (ITR).
- If excess TDS is deducted, the individual can claim a refund through ITR filing.
- All TDS details must be verified in Form 26AS before return submission.
- Proper inclusion of interest income prevents notice or tax mismatch.
- Taxpayers should consolidate TDS from all banks and branches to avoid short reporting.