Like any type of financial gain, we also have to pay taxes on the interest earned on the FD deposit. The tax which you’ll have to pay to the government is calculated based on various factors.
Some financial tools can be great for tax savings and some FDs also provide tax-saving options, however, noting as PPF or insurance policies.
In this article, we will discuss How Much Tax on FD Interest, TDS calculation for Fixed Deposit, TDS on FD, TDS for Non-Senior Citizens, etc.
But first, let’s find out what is a Fixed Deposit.
Table of Contents
What is a Fixed Deposit?
A Fixed Deposit is a fixed-income generating account where you invest your money and get returns for the investment at a fixed rate of interest. You’ll get the rate of interest until the maturity of the FD Account or you’ve signed out of the FD Account.
The interest provided by the FD account is stable and do not get affected by any of the market movement which makes it a stable and trustworthy deposit account. At the time of maturity, you’ll get the deposited money along with the interest incurred.
What is TDS?
TDS stands for Tax Deposit at Source meaning tax which is collected at the source whenever the income is generated. This system of taxation system reduces the tax evasion of individuals who are not paying the taxes on time or evading it purposely. TDS is usually deducted from salary, FD Interest rate, interest payment of banks, Commission, rent, etc.
What is TDS on FD?
TDS on FD means whenever you are making an FD investment and upon maturity or early dissolving the FD Account, you’ll receive the amount after the deduction of the taxes. The TDS is differently charged based on the following factors:
TDS on Bank FD
The TDS of 10% will be charged on the income if the interest earned exceeds Rs.40,000/- for the citizen aged below 60 years and for the citizen above 60 years, the interest will be taxed if exceeds Rs.50,000/-.
TDS on Non-Banking FD
For non-banking Financial institutions like NBFCs, the TDS charged limit is Rs.5000/-. The interest income will be taxable if the earning exceeds Rs.5000/-. The TDS charged is 10% but if you fail to provide your PAN details, then you’ll be charged a 20% TDS.
TDS For NRI
NRI pays significantly higher taxes than resident Indian citizens which is 30% TDS for NRIs.
TDS for Senior Citizens
The senior citizens are liable to pay taxes only when their interest earned exceeds Rs.50,000/- which is taxed at 10%.
How TDS is Calculated?
Understanding how the TDS is calculated helps you determine whether the investment you are making is right or not. This can be best explained using an example-
Suppose you have an FD with an annual interest rate of 8%. Over a year, your FD has earned an interest of Rs. 60,000. You fall under an income tax slab where your tax rate is 15%, and the bank applies TDS at a rate of 10%.
Taxable Interest Earned: Rs. 60,000
Individual’s Income Tax Rate: 15%
Bank’s TDS Rate: 10%
Calculate TDS Amount
TDS Amount = Taxable Interest Earned × Bank’s TDS Rate
TDS Amount = Rs. 60,000 × 10% = Rs. 6,000
The bank deducts Rs. 6,000 as TDS from the interest earned on your FD.
Calculate Profit i.e., Net Interest Received
Net Interest Received = Taxable Interest Earned – TDS Amount
Net Interest Received = Rs. 60,000 – Rs. 6,000 = Rs. 54,000
After deducting TDS, you will receive Rs. 54,000 as net interest.
Impact on Tax Liability:
When you file your income tax return, you need to report the total interest earned, which is Rs. 60,000. However, since the bank already deducted Rs. 6,000 as TDS, your actual tax liability will be calculated on the remaining interest amount of Rs. 54,000.
Considering your income tax slab of 15%, the tax liability would be:
Tax Liability = Net Interest Received × Income Tax Rate
Tax Liability = Rs. 54,000 × 15% = Rs. 8,100
In this case, the bank’s TDS of Rs. 6,000 partly offsets your tax liability of Rs. 8,100. Depending on your overall income and other deductions, you may either receive a tax refund or need to pay the balance amount.
TDS is calculated on the interest earned with 10% TDS deducted on the interest earned.
The current TDS rate of FD Interest earned is 10% but for those who do not show their PAN Card, the taxable rate is 20%.
Yes, senior citizen enjoys a higher TDS limit which is Rs.50,000/-.
Yes, banks provide Form 16A, a TDS certificate, showing the TDS deducted on FD interest. It’s crucial for accurately filing your tax return.
If you’ve paid more TDS than your actual tax liability, you can claim a refund by filing your tax return and providing the necessary details.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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