How to Save TDS on Fixed Deposit?

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In this article, we will discuss how to save TDS on fixed deposits in Bank, Post office, etc. We will discuss topics like when this TDS is deducted? on what amount the TDS is deducted, What is the % of TDS that will be deducted? How to save TDS on fixed deposit? What to do if the TDS is deducted?

What is TDS?

Whatever the interest amount you earned from your fixed deposit is taxable. If your yearly income is higher than Rs. 5 lakhs, then the interest earned on your fixed deposits is taxable as per the applicable tax slab.

Before we move ahead, let’s understand the difference between TDS and Income Tax.

Income Tax = Levied on your annual income

There are different slabs for different incomes. Here is the detailed article on Income Tax Slabs. You can check the different applicable slabs for different income.

TDS = Tax Deducted at Source

TDS is deductible on any income you earn which is slightly high. In TDS the tax is deducted before you get the income. Hence it is known as Tax Deducted at Source.

Why is it so? Because the Government doesn’t trust you. Yes! frankly speaking, Government doesn’t trust you so they think that you might not pay income tax on this income. So they deduct the tax before you receive that income.

Remember, TDS is not your actual income tax. It is an ad hoc deduction and will be adjusted against your final tax liability.

If the TDS deducted is higher than the actual tax liability then the amount will be refunded to you. Let’s understand this with the example.

Total Income = Rs. 400000

TDS deducted = Rs. 20000

Tax Liability = Rs. 0

TDS Refund = Rs. 20000

Now let’s take the reverse example where there is a tax liability.

Total Income = Rs. 2000000

TDS deducted = Rs. 20000

Tax Liability = Rs. 412500

TDS Refund = Rs. 0

So in a nutshell, TDS is just advance tax which will be adjusted against your actual tax liability.

TDS > Tax Liability = TDS Refund

TDS < Tax Liability = No Refund

Save TDS on Fixed Deposit

Now as you have a fair idea about what is TDS, let’s check its applicability and how to save TDS on fixed deposit.

Once TDS is deducted from your income, you have to wait for a year to get it back in case your tax liability is less than the deducted TDS amount. So it is very much important to understand its applicability and the ways to save TDS on the income.

If you have any fixed deposit in a bank and you are earning interest on that, then the bank will deduct the TDS on the interest income paid to you.

The limit for deducting TDS on the fixed deposit is Rs. 40000/- So if your interest income is higher than Rs. 40000/- then the bank will deduct the TDS @ 10% on the earned interest. The residue amount will be credited to your bank account as an interest credit.

One more point you need to remember here is the applicable 10% TDS is in the case where you have furnished your PAN number to the bank. If you have not furnished your PAN number to the bank the TDS % will be 20% on the interest amount.

Ways to save TDS on fixed deposit

Give Declaration

If you think that your interest amount will not cross Rs. 40000/year, then you can give a declaration to the bank for not deducting your TDS amount upfront.

For that, you need to submit the form 15G to your bank. This is a declaration form given by you that your income is not crossing the threshold limit and hence bank should not deduct the TDS.

Form 15H is applicable for the senior citizens whose age is higher than 60 years.

Nowadays, most of the banks are providing this facility online wherein you can give this declaration through their portal. So once this declaration is given to your bank, the bank will not deduct the TDS on your earned interest.

Do Fixed Deposit in Different Banks

There may be the case where the person’s income is taxable but he doesn’t want to get the TDS deduction. For saving TDS on fixed deposits, there is a smart way. Do fixed deposits in different banks in a way that your interest amount from one bank should not cross Rs. 40000/-

Under this scenario, the bank will not deduct the TDS on the interest income.

But do remember, this income will be added to your annual income and your tax liability will be calculated on this amount.

What should you do if the TDS is deducted?

If the TDS amount is deducted by the bank, then you must collect the form 16A from the bank. This form 16A is the statement showing all the TDS deduction done by the bank.

This certificate is required to claim the TDS in your final income tax return. The amount shown in the form 16A will also be available in your Form 26AS on the income tax portal.

The amount showing in form 16A and form 26AS must match. If there is any discrepancy, then you should contact your bank who has issued you a form 16A.

FAQs – Save TDS on Fixed Deposit

Is TDS applicable on fixed deposit?

Yes, the interest earned more than Rs. 40000/year attracts TDS.

What is the TDS Deduction %?

10% deduction if the PAN card is submitted to the bank, else 20% on the earned interest.

Can I get the TDS amount back?

If your tax liability is less than the TDS amount, then the extra deducted TDS will be refunded.

What if I don’t want my bank to deduct the TDS?

You can give a declaration (form 15G) to the bank.

My TDS is deducted at 20% rate, why?

Because you must have not furnished your PAN number to the bank.

Is FD in the post office taxable?

If it’s for a year then it is taxable. FD for more than 5 years is not taxable.

Who is eligible for Form 15G?

Age less than 60 years and annual income less than 5 lakhs

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Conclusion:

TDS is the advance tax applicable to the earned interest from the fixed deposits. As mentioned above, there are ways to save TDS on fixed deposit. Please share your views in the comment box below.

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