Fixed deposits (FDs) being the most popular investment instrument and is also a safe investment option with guaranteed returns among the investors in India. However, interest on FDs is fully taxable and this somewhat reduces the appeal of FDs.
Banks are required to deduct TDS on FD interest only if the sum of interest earnings from fixed deposit investments exceeds the minimum threshold amount as per Income Tax Act, 1961.
TDS rates applicable for different customers
- For Indian Resident: As per section 194A of Income Tax Act 1961, If the interest earned from fixed deposits from the financial year 2021-22 exceeds Rs. 40,000, then the bank would deduct tax on the interest paid at the rate of 10%.
In case of Senior citizen the threshold limit is Rs. 50,000.
Note: In case depositor fails to submit PAN, then the Bank will deduct TDS at the rate of 20%.
- For Non-Resident Indian: As per section 195 of Income Tax Act 1961, if Non-Resident Ordinary (NRO) account investor, then TDS on interest earned from fixed deposits shall be deducted at the rate of 30% but interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts is not taxed in India. Therefore there is no tax deducted at source.
How to apply for TDS Waiver
Have you ever thought why bank always deduct TDS on the interest on your FDs? Is there any way to stop the bank from deducting TDS?
Good news is YES. You can always ask the bank not to deduct TDS on the interest income.
This is how you can do it. If you are an Indian Resident, you can avoid TDS on interest earned from fixed deposits by submitting Form 15G and 15H at the beginning of the financial year.
Form 15G is for those who are below the age of 60 years and Form 15H is for individuals who are above the age of 60 years (Senior citizens).
These forms basically include self-declaration stating that your income is below the basic exemption limit. Therefore, no TDS should be deducted on interest earned from FDs. The benefits of Form 15G and 15H cannot be claimed by Non-residents. For using this facility providing PAN is mandatory.
Form 15G and Form 15H are valid for one financial year. You may submit these forms every year at the beginning of the financial year. This will ensure that the bank does not deduct any TDS on your interest income