TDS on Fixed Deposit and Recurring Deposit
What is a Fixed Deposit?
It is a saving instrument where you can make a deposit a sum of money for a stipulated time and you earn the interest on the same. After the maturity of the fixed deposits, the depositor gets back the interest earned along with the principal amount that he or she used as an investment.
FDs are a relatively safe investment option and FDs up to Rs 1 lakh is guaranteed by the Deposit Insurance Guarantee Corporation of India (DIGCI).
TDS on Fixed Deposits
A fixed deposit is taxable if falls at your
slab rate along with applicable surcharge or Cess. The TDS rate on Fixed
Deposit is 10% of the interest amount for the entire financial year. If it exceeds
Rs 10,000 for the Assessment year 2019-2020.
In the 2019 budget, TDS deduction limit on Fixed Deposit has been
increased to Rs 40,000. As per the existing Income Tax Rules, the TDS rate
applies to fixed deposit is 20% in case, the taxpayer does not provide PAN card
details to the bank.
For FDs of Non- Resident ordinary, the TDS rate is 30%. For NRE, TDS and Foreign Currency, Non- Resident, there is no TDS rate applicable to FDs. It is tax-free.
Detail of TDS deduction by the bank uploaded in Form 26AS. No TDS deduction in either Time Deposit or Recurring deposit of a post office.
Senior Citizen above the age of 60 can get up to Rs 50,000 per year in FD interest tax-free and no TDS deduction for interest received up to Rs 50,000 per annum for them.
Ways to save or reduce tax on Fixed Deposits
- If the total income of a person for the year is less than 2.5 Lakh, then the person is not liable to pay any taxes.
- If the person submits Form 15G/15H, the bank after that will ensure that it does not make any TDS deduction on the interest income.
- You can make a Fixed Deposit in the Post Office branch rather than a bank. No TDS deducted on Post Office Fixed Deposits.
- You make an investment of Fixed Deposits in the name of family members such as spouses or parents. The tax on Fixed Deposit interest income is calculated for an individual and tax charged depends on the slab rate under which they fall.
Example
If X wishes to make an investment of Rs 300,000 in Fixed Deposits, which gives an interest of 10%. Interest earned on the same will be Rs 30,000. TDS deducted on it is Rs 3000. If out of 300,000, you make an investment of Rs 75000 in your family member’s name, interest on Fixed Deposit comes to Rs 7500. This is below the threshold of Rs 10,000 and no TDS will be deducted. It can attract the clubbing provisions of the Income Tax Act, 1961 which is the income of your spouse or family members is clubbed with your income. But always consult a CA before you choose this way.
Another way of reducing or saving TDS on a fixed deposit is to make a Fixed deposit in different branches. If you want to invest 200,000, then the interest earned on the same 20,000. It is exceeding the threshold limit i.e. 10,000. If you divide 200,000 and make three Fixed Deposits in three different banks., then the interest earned is Rs 3,333 in each bank. Since each amount (Rs 3,333) is below the threshold of Rs 10,000 the banks will not deduct TDS on the same.
Points to keep in mind about TDS on Fixed Deposits
If the bank has made a TDS Deduction but the person is liable for a lower rate of tax, you can claim amount as a refund by filing an Income Tax Return.
If the person falls under the higher income tax slab rates such as 20% or 30%, he or she needs to pay TDS in the form of a self-assessment tax.
The bank does the TDS calculation at the time when the interest is due for the deposit and not when they pay it. Tax is paid on the interest income on an annual basis and not at the time of Fixed Deposit. If you want to calculate the FD maturity amount, then use the FD Calculator.
TDS on Recurring Deposit
Recurring Deposits are deposits made at regular intervals. The TDS provisions on RDs are the same as TDS on FD. TDS is deducted on RDs if the interest payable for them in a single bank is more than Rs 10,000.
In case of RD also, senior citizen gets tax exemption on interest earned on Recurring Deposit up to Rs 50,000 per annum.
