Income Tax on FD Interest in India FY 24-25|Save Tax on Fixed Deposits

Fixed Deposit Interest and Taxes in India: Key Takeaways

• Tax on FD Interest: Interest earned on FDs is considered “income from other sources” and is taxable in India.

• TDS on FD Interest: Banks or NBFCs deduct TDS (tax deducted at source) on FD interest if it exceeds a certain limit:

• Non-Senior Citizens: Rs. 40,000 per year
• Senior Citizens (60+): Rs. 50,000 per year

TDS Rate:

• 10% if you provide your PAN details to the bank.
• 20% if you don’t provide PAN.

• Tax Implications:

Even if TDS isn’t deducted, you still need to pay tax on the entire interest income when filing your income tax return (ITR).

You can claim the deducted TDS as a credit against your overall tax liability.

• Avoiding TDS: You can avoid TDS if your total income is below the taxable limit (currently Rs. 2,50,000) by submitting Form 15G or 15H to the bank.

• Saving Tax on Fixed Deposits

Invest in Tax-Saving FDs: These FDs have a 5-year lock-in period but allow deduction under Section 80C (up to Rs. 1.5 lakh) of your taxable income.

Joint Investment: Consider opening FDs jointly with someone in a lower tax bracket to potentially reduce overall tax liability.

Let’s have a detailed article to understand how TDS is deducted on Fixed deposits with example.

No doubt, a Fixed deposit (FD) is always a popular and secure investment option offered by banks and non-banking financial institutions (NBFCs) in India. 

What is Fixed Deposit?

It is simple na, you deposit a lump sum of money for a predetermined period (usually 7 days to 10 years). The bank guarantees a fixed interest rate on your deposit for that tenure. 

FDs are a safe investment. Up to Rs. 1 lakh, your investment in banks is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a government agency. So, even if the bank goes insolvent, your FD will be safe.

But, our main question Is fixed deposit interest taxable in India? If yes, then what is the tax on FD interest in India? 

Understand one simple thing first interest on FDs in India is covered under ‘income from other sources’ and hence, you need to pay tax on FD interest in India. 

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Which Bank is Paying the Highest Interest on FD?

Now, do you need to pay tax on FD Interest in India?

Let’s check who needs to pay tax on FD interest in India. 

TDS on Bank FD

Banks or post offices deduct TDS (tax deducted at source) on FD interest when the total interest earned across all your FDs exceeds the below-specified limits:

• Rs. 40,000 per financial year for non-senior citizens (age below 60 years).

• Rs. 50,000 per financial year for senior citizens (age 60 years or above).

The current TDS rate on FD interest is 10% if you have provided your PAN details to the bank.

If you haven’t provided your PAN details, TDS is deducted at a higher rate of 20%

In simple language, if you earn interest on FD more than ₹40,000, then you need to pay 10% as tax (if you have a PAN card) or 20% tax (if you don’t have a PAN card). 

TDS on Non-Bank FD

NBFCs deduct TDS if your interest income is more than Rs. 5,000. 

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When Tax on FD Interest is Deducted?

Tax on FD interest would be deducted as TDS (tax deducted at source) at the time of credit of annual interest. 

How is TDS on FD Calculated | Example for Tax on FD Interest

Let’s look at a basic example to understand how tax applies to FD interest in India.

Example 1: Non-Deduction of Tax

Simran’s Investment:

She has 2 fixed deposits (FDs) of Rs. 1,00,000 each.

The interest rate is 6% per year.

First Year’s Interest:

Each FD earns Rs. 6,000 interest (1,00,000 * 6% = 6,000).

So, her total interest income for the year is Rs. 12,000 (6,000 from each FD).

No TDS Deduction:

The bank doesn’t deduct any tax deducted at source (TDS) on this interest income. This is because the total interest (Rs. 12,000) is below the Rs. 40,000 limit for mandatory TDS deduction on FD interest.

Tax Implications:

Even though TDS wasn’t deducted, Simran will still need to pay tax on the full interest income (Rs. 12,000) when she files her income tax return (ITR).

Since she falls under the 20% tax bracket, she’ll pay 20% tax on Rs. 12,000.

The actual tax amount she owes will be calculated during ITR filing.

Example 2: Deduction of Tax

Shiva’s Investment:

He has a fixed deposit (FD) of Rs. 10,00,000 (Rs. 10 lakh).

The interest rate is 6% per annum.

Interest Earned:

Shiva earns Rs. 60,000 annual interest (10,00,000 * 6% = 60,000).

TDS Deduction:

The bank deducts TDS (tax deducted at source) on the entire interest amount (Rs. 60,000). This is because the interest income surpasses the Rs. 40,000 limit for mandatory TDS deduction on FD interest.

TDS Rate:

The bank deducts TDS at the prescribed rate of 10% (Assuming he has provided his PAN details to the bank).

Amount Deducted:

The TDS deducted by the bank is Rs. 6,000 (60,000 * 10%).

What happens next?

Shiva will receive Rs. 54,000 (Rs. 60,000 interest – Rs. 6,000 TDS) from the bank after the TDS deduction.

While filing his income tax return (ITR), Shiva will need to include the full interest amount (Rs. 60,000) as income.

He can then claim the Rs. 6,000 TDS deducted by the bank as a credit against his overall tax liability.

What if My Total Income in a Financial Year is Below the Taxable Limit?

In case your total income in a financial year is not more than ₹2,50,000 (minimum taxable amount), you will not be required to pay tax on FD interest. However, to get an exemption from TDS, you would need to submit form 15H or 15G (depending on age and income) to the bank by mentioning not to deduct TDS because your income is below the taxable limit.

How to Check How Much Tax on FD Interest is Deducted?

You can check your Form 26AS to know how much tax on FD interest is deducted. This form includes details of all TDS deductions made on various income sources, including FD interest.

You can download Form 26AS from the Income Tax Department’s e-filing portal (https://www.incometax.gov.in/iec/foportal/).

Can I Get My Tax on FD Interest Back?

Yes, you can claim the TDS deducted by the bank as a tax credit while filing your ITR.

Can I Avoid Tax on Fixed Deposits?

Yes, you can avoid tax on FD interest if your total income in a financial year is below the taxable limit. For this, you can submit forms 15G and 15H to your bank. 

How to Save Tax on Fixed Deposits in India? 

Here are some ways you can save tax on fixed deposits (FDs) in India:

Way 1: Invest in Tax-Saving FDs

Benefit: These FDs come with a lock-in period of 5 years and qualify for a deduction under Section 80C of the Income Tax Act. This allows you to deduct the investment amount (up to Rs. 1.5 lakh) from your taxable income, reducing your tax liability.

Here’s what you can do:

Look for “Tax Saving FD” schemes offered by banks.

Invest up to Rs. 1.5 lakh during the financial year.

Remember, the lock-in period is 5 years.

Way 2: Invest Jointly 

You can consider opening FDs jointly with a family member whose income is lower. This can help distribute the interest income and potentially reduce the overall tax liability.

Way 3: Submit Form 15G or 15H

Submit Form 15G (if your income is below Rs. 2.5 lakh) or Form 15H (for senior citizens) to the bank. This declares you are not liable to pay tax and prevents TDS deduction.

Frequently Asked Questions

Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial advice, investment recommendations, or guarantees of any kind. This information is not intended as a substitute for professional financial advice. You should always seek the advice of a qualified financial advisor before making any investment or financial decisions.