Fixed deposits (FDs) are a popular investment option among individuals seeking stable returns. It is a low-risk avenue for investing your savings and creating wealth to achieve your financial goals. However, it is important to know about the tax implications of receiving an FD interest income.
It is crucial to stay informed about any potential changes or updates to the TDS regulations. This ensures that you are compliant with the regulations. It further helps you maximise your investment returns.
What is TDS on Fixed Deposit Interest?
TDS, or Tax Deducted at Source, is a mechanism implemented by the Income Tax Department of India. Through this, the Indian Government collects tax directly at the income source.
Financial institutions deduct TDS on fixed deposits before crediting the amount to your account. This deducted amount is then remitted to the government. It is an advance tax payment made on behalf of the depositor.
Current TDS Rates for Fixed Deposit Interest
As of the assessment year 2025-26, the TDS rate for interest income from fixed deposits is as follows:
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For resident individuals: 10% of the interest income exceeding ₹40,000 each year (₹50,000 for senior citizens)
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For non-resident individuals: 30% of the interest income (plus applicable surcharge and cess) depending on the account type (plus applicable surcharge and cess)
It’s important to note that these rates are subject to change as per revisions made in the Union Budget.
Exceptions and Exemptions
TDS is generally applicable to all fixed deposit interest income. However, there are certain exceptions that depositors should be aware of:
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Senior Citizens: Individuals aged 60 years or above are eligible for a higher TDS exemption limit of ₹50,000 p.a.
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Submission of Form 15G/15H: If your total income is below the exemption limit, consider Form 15G. Submit this form to your issuer to avoid TDS on your interest income. Senior citizens can submit Form 15H for the same purpose.
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HUF and AOP: Hindu Undivided Families (HUFs) and Association of Persons (AOPs) are not eligible for the TDS exemption. Thus, TDS is deducted from the entire interest income.
Implications of TDS on Fixed Deposit Interest
While TDS is an advance tax payment, it may have certain implications for depositors:
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Reduced Interest Income: The deduction of TDS reduces your actual interest income. However, the TDS amount could be claimed as a credit against the final tax liability when filing your ITR.
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Compliance Requirements: Ensure you report your FD interest income and the TDS deducted in your ITR filings. Failure to do so may result in penalties and interest charges.
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Refunds: If the TDS deducted is higher than the actual tax liability, you may get a refund. During ITR filing, if the TDS deducted is less than your liability, you will have to pay the remaining tax amount.
Streamlining TDS Compliance
It is important to streamline TDS compliance and ensure accurate tax calculations. To achieve this, follow the simple steps listed below:
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Maintain Records: Keep records of the FD interest income and the TDS deducted. Safely store any relevant documents provided by the bank or NBFC.
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Update Details: Inform the issuer about any changes in your tax exemption status. This may include obtaining senior citizen status or changes in your income level. This could help ensure that the TDS deductions are accurate.
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File Income Tax Returns: File your ITR, mentioning the TDS paid on your fixed deposits investments. This will help reconcile your tax liability and ensure compliance.
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Get Help: If you find the TDS regulations complex, seek guidance from a tax professional. Gain clarity on any specific doubts you may have. A good financial advisor could help you with accurate tax planning and compliance.
The provisions for TDS may vary for companies, firms, or trusts. In such cases, the TDS rates and thresholds could vary. Thus, it is advisable to consult professionals or refer to the latest tax guidelines.
Also, new exemptions and deductions for an FD’s interest income may be introduced by the government. These could potentially impact the total tax implications. Staying up to date with these revisions can help in effective tax planning. It can also help you maximise the benefits of your FD.
You can also use tools like an FD calculator online to check the interest you can earn on a deposit. This information can be used to determine the TDs payable. Such insights may help you plan your taxes more efficiently.
It is important to stay vigilant for any potential changes or updates to the TDS regulations. Also, maintain accurate records, fulfil all filing requirements, and seek help if needed. Understand the TDS regulations and take proactive steps to optimise your FD investments. Ensure compliance, and maximise your FD returns while minimising potential tax liabilities.