Everything You Need to Know About Taxes on Fixed Deposit Earning

  • 05 Jun 2024
  • Read 5 mins read

Taxes on Fixed Deposit Earning

Do we have to pay tax on fixed deposit investment? Obviously, taxes on fixed deposit interest is a must as it is just like any other earning. There is tax on fixed deposit interest earned during the year and it is treated as other income and taxed at the peak rate. Even if it is a cumulative FD, interest accrued is taxed each year, even if you don’t receive interest.

When it comes to taxes, there is a TDS that the bank deducts and the actual tax payable. You can get credit for the TDS deducted while filing returns. There is lower TDS on fixed deposits for senior citizens to simplify matters. Also, you would be interested to know that the FD interest rates for senior citizens are higher than for others. There are also tax saving FDs of over 5 years, but they pertain to exemption on Fixed Deposit investment and not on the interest, which continues to be taxable.


Taxation of interest of Fixed Deposit

The taxation for FD interest is fairly straight forward. It is classified as other income, so it will be taxed at your peak rate of tax. There are 3 things you should know here.

• The rate of tax on FD interest is at your peak rate. If your applicable rate of tax is 20% then FD interest is taxed at 20% and if it is 30% then FD interest is taxed at 30%.

• As in most investments, there is TDS at different rates and we shall look at that in detail later on.

• In the case of individual whose total income is less than Rs2.50 lakhs and not liable to pay tax, they can claim exemption from TDS, as we will see later.

Understanding the concept of TDS (Tax Deduction at Source) for FDs

TDS (Tax Deducted at Source) is a tax deducted on the accrued interest amount (irrespective of whether it is paid) of an FD. Banks and NBFCs deduct TDS if the accrued interest amount annually, across FDs exceeds the threshold limit. Here are some basic rules on TDS on FD interest  deducted.

• Banks and NBFCs are allowed to deduct TDS on FD interest at the end of every fiscal year at the standard rate of 10%.

• However, there is a catch. In case you don’t provide Income Tax PAN (Permanent Account Number) details linked to FD, the TDS is deducted at 20%.

• In case of joint FD holders, the primary holder is responsible for paying TDS. This applies to interest paid and to interest accrued.

• TDS is deducted by the bank or the NBFC after providing for the basic exemption of Rs5,000. Hence, if your interest income across is Rs25,000, then it will be TDS of 10% of Rs20,000 which is Rs2,000 deducted.

• The TDS of 10% only applies to Indian citizens and residents with PAN card details furnished. For PAN card details not furnished, the rate of TDS is 20%. However, in case of NRIs, the rate of TDS is 30% plus surcharge and cess. 

Apply in advance for TDS waiver

As stated earlier, it is possible to get waiver of TDS deduction in case your total annual income including FD interest is less than Rs2.50 lakhs. Here is how it can be done.

• Submit Form 15G (if you are under 60 years of age) or Form 15H (for senior citizens) to your bank or NBFC at the beginning of the fiscal year based on self-declaration that taxable amount is NIL.

• In case, the TDS is still deducted, you can file the returns and claim tax refund from the Income Tax authorities.

• Senior citizens are exempt from TDS on FD interest if their total income include FD interest is less than Rs5 lakh.