TDS on FD interest decoded: Who pays, how much banks deduct, and exemption rules

Fixed deposit interest remains a key source of passive income for many Indians, but it also attracts tax rules under the Income Tax Act. From TDS thresholds and PAN requirements to Form 15G/15H exemptions, here’s what FD investors must know to avoid unnecessary tax deductions.

What is the TDS on Fixed Deposits and what are the rules under Incomce Tax ACT?

TDS is short for Tax Deducted at Source. It is a procedure by which the bank that holds your fixed deposit deducts a part of the interest earned for payment of taxes. This tax is then debited to the government’s account by the bank without you having to pay any extra costs, explains SBI life

Under Section 194A of the Income Tax Act, banks deduct TDS at 10% on FD interest income if the total interest earned exceeds ₹50,000 in a financial year.

Moreover, bank will deduct a 20% TDS on FD interest income if the account holder fails to the PAN to the bank.

Why the PAN card is critical?

The TDS criteria vary with age and the availability of a PAN card. For example, the the TDS on FD for the senior citizens are different from those below the age of 60.

What are the rules for senior citizens?

TDS exemption threshold on FD is a higher for the senior citizens. As per the act, senior citizens do not have to pay TDS on FD interest as long as it does not exceed Rs1 lakh during the financial year.

How to avoid the TDS on fixed deposits?

If your total income is below the taxable limit – ₹50,000 (and ₹1 lakh for senior citizens) , you can prevent TDS on fixed deposit interest by submitting Form 15G or Form 15H to your bank.

Form 15H is meant for senior citizens aged 60 and above, while Form 15G is for individuals below 60.

It is to be noted that these documents needs to be submitted at the beginning of the financial year. In case, you miss it, you can claim the the TDS amount as a refund by filing an income tax return.

Key points to consider:

• Banks deduct 10% TDS on FD interest if annual earnings exceed ₹50,000 under Section 194A of the Income Tax Act.
• If PAN is not submitted, TDS on FD interest rises sharply to 20%.
• Senior citizens get a higher TDS exemption threshold of ₹1 lakh in a financial year.
• Taxpayers can avoid TDS by submitting Form 15G or Form 15H if their income is below the taxable limit.

How to report FD returns in tax return?

Details of FD interest and TDS deducted can be checked in Form 26AS, AIS and TIS. If you hold multiple FDs, combine the total interest earned and report it under ‘Income from Other Sources’.