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Section 194A - TDS On Fixed Deposit (FD)

TDS (Tax* deducted at source) ensures tax* is deducted at the source of income, thus keeping a check on tax* evasion. Individuals earn an income in the form of salary, bonuses, dividends, interest, etc. So, it is essential to calculate these incomes while calculating the tax* liability of an individual. Section 194A TDS deals with interest on several items that are substantial sources of income for a person.
 

So, read ahead and learn about TDS on fixed deposits and how it is calculated.
 

Section 194A of the Income Tax* Act,1961
 
  • Section 194A has provisions and rules of TDS application on interest payments or incomes other than securities.
  • TDS is deductible on the interest income from fixed deposits, loans and advances (both secured and unsecured), recurring deposits, etc.
  • Section 194A applies to Indian residents only. For NRIs, TDS is deductible under Section 195 of the act.
  • An individual or entity whose total income dos not cross basic exemption limit of Rs. 250,000/- and wishes to not get TDS deducted on its interest income has to submit copies of either Form 15G (Hindu Undivided Families and resident Indians below the age of 60) or Form 15H (for individuals who will turn 60 in the financial year or have already turned 60). Copies of the forms are submitted to the interest payer.
     
TDS on Fixed Deposit
 

Fixed deposits are an attractive investment tool for many Indians due to their  interest rates. But the interest that you earn on fixed deposits is considered a taxable income. This is why banks deduct a certain amount of your fixed deposit interest. Thus, TDS on FD interest is applicable under the Indian Income Tax* Act,1961.
 

 Interest FD TDS Section
 

The taxation on FD interest is levied in the following ways:
 

  • The interest on FD under the TDS section does not considered your income which is taxed according to the slab rates. The TDS is deductible at the time of interest credit and not at the time of FD maturity.
  • TDS on the FD interest is applicable if your interest income is more than ₹40,000 in a financial year. This provision applies to all except senior citizens above the age of 60 years. For senior citizens, the interest income must be above ₹50,000.
     
Who is Exempted from TDS on FD?
 

TDS on FD is not applicable in the following cases:
 

  • The bank does not deduct any TDS on FD if your taxable income is less than ₹2.5 Lakh and form 15G/H is submitted or threshold of Rs. 40,000 is not crossed in a financial year.
  • You enjoy TDS exemption if you are above 60 years of age and have an income below ₹3 Lakh in a financial year and form 15G/H is submitted or threshold of Rs. 50,000 is not crossed in a financial year.
     
How TDS Rates on FD are Calculated?
 

The FD TDS rate is calculated according to the tax* slab an individual is eligible for. According to the rules of the Income Tax* Act, banks can deduct TDS on FD interest at the rate of 10% in a financial year. However, a 20% TDS rate is levied if you do not furnish authentic PAN details. Let’s consider an example to understand the method of TDS calculation:
 

Mrs Komal has two FDs of ₹2 Lakh each. She earns interest at 10% for 4 consecutive years.
 

Now, the interest on both her FDs in a financial year will be ₹40,000 (₹20,000 on each FD)
 

Interest in 4 years will be ₹1.6 Lakh (₹40,000*4)
 

Thus, TDS on the interest limit of both the FDs will be levied at 10%
 

10% of ₹40,000= ₹4,000 (TDS on FD in a financial year)
 

Rules of TDS on Fixed Deposits
 

 

  • An extra tax* is levied at 10% besides the TDS if your income from interest exceeds ₹5 Lakh.
  • TDS on the FD interest section is levied at 20%, besides the TDS, if the interest income is more than ₹10 Lakh.
  • The entity deducting TDS has to provide Form 16A or a TDS certificate to the taxpayer.
  • TDS on bank interest is not applicable if your total income, including the FD interest, is under the exemption limit, which is ₹2.5 Lakh.
  • If you have invested in a tax*-saving FD, you are still liable for TDS on FD.
  • TDS on FD is deducted against the PAN details of the primary account holder if the FD has joint account holders. The secondary account holder is not liable for TDS deductions.
     
Some Tips to Reduce TDS on FD
 

There are some smart ways to reduce your tax* liability on FD interest. They are as follows:
 

  • You can open bank accounts in different banks to reduce your TDS liability.
  • You can consider opening FD accounts in the name of your spouse who does not earn.
  • You can invest in a post office FD to avoid TDS on your investment.
  • You can provide Form 15G at the start of the financial year declaring that your annual income is less than ₹2.5 Lakh.
  • If you are a senior citizen above 60 years of age and earn less than ₹3 Lakh per annum, submit Form 15H to avoid TDS. 

 

Conclusion
 

Now you know about Section 194A of the Income Tax* Act, 1961 and how TDS on FD is calculated. As a responsible citizen, you must pay your taxes on time. But if you fall under a more tax bracket, income tax* can take a big chunk of your income. Therefore, the government has given several options to reduce your tax* liability.
 

Life insurance is one such saving that can help in tax* savings. By saving in a life insurance plan, you can avail of tax* deductions up to ₹1.5 Lakh per annum under Section 80C of the Income Tax* Act,1961. Also, the maturity or death benefit of life insurance is tax*-exempt under certain conditions.


L&C/Advt/2023/Jan/0005 

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions
 

Some common FAQs on FD TDS limit are:

How much interest on FD is TDS free?

FD interest income less than ₹40,000 is TDS-free for PAN users. But interest income less than ₹50,000 is TDS-free in the case of senior citizens above the age of 60 years. 

Which interest incomes are not covered under Section 194A?

Section 194A does not apply to interest from securities and interest paid by a parentship firm to its partners. 

What is covered under Section 194A?

Section 194A covers TDS deduction on interest income other than securities. The section covers interest on FDs, unsecured loans, recurring deposits, advances, etc. 

Disclaimer

  • Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.