Tax Deducted at Source sometimes gets applied to your fixed deposit, and your interest earnings seem slightly lower than expected. Nothing complicated here, just an advance tax that is deducted. Read on to know more about TDS on FD interest, the amount that gets deducted, and whether you can reduce or avoid it.
What is TDS on Fixed Deposits?
TDS or Tax Deducted at Source is applied by your bank to your FD interest. They deduct a certain amount from the FD interest that you earned. And this happens even before you get the interest. The bank then deposits this deducted amount to the Income Tax Department on your behalf.
So, here is what happens: you earn a certain fixed deposit interest, but you don’t get the full amount directly. A small part is held back in the form of an advance tax.
How Much TDS is Deducted?
Let’s look at the rate of TDS.
- 10% TDS is deducted if your PAN is updated with the bank.
- 20% TDS is deducted if PAN is not provided or is incorrect.
That is why it’s so important to ensure your PAN is linked to your bank account.
When Does TDS Apply?
TDS on fixed deposit interest is only deducted if your total interest in a financial year crosses a certain limit:
| Category | TDS Limit (Annual FD Interest) |
| Individuals below 60 | ₹40,000 |
| Senior Citizens (60+) | ₹50,000 |
No TDS is deducted if your FD interest earnings are below the limit.
Example to Understand it Better
A person who is 35 years old and annually earns ₹50,000 interest from their fixed deposits. The limit for TDS is ₹40,000. So, now their interest goes ₹10,000 over the limit. The bank will deduct 10% of ₹10,000, i.e., ₹1,000 as TDS.
So, they get ₹49,000 in hand, and ₹1,000 will be deposited with the Income Tax Department. If the person hadn’t submitted their PAN, the TDS would be ₹2,000 (20%).
When is TDS Deducted?
Banks deduct TDS when your interest crosses the threshold, not necessarily at the end of the year. It may be deducted:
- On each interest payout (monthly, quarterly, or at maturity)
- On accrued interest as of March 31, even if it hasn’t been paid out
So yes, even if your fixed deposit matures next year, if interest is accruing this year, TDS might still be applied this year.
How Can You Avoid or Reduce TDS?
Good news: If your income is below the taxable limit, you don’t have to pay tax or face TDS. Here’s how to prevent it:
Submit Form 15G or 15H
- Form 15G: For individuals below 60 years of age
- Form 15H: For senior citizens
These forms tell the bank that your income is not taxable, so no TDS should be deducted.
Apply for a Lower Deduction Certificate
If you are eligible for a reduced TDS rate, you can apply to the Income Tax Department and get a certificate to show your bank.
TDS is Not the Final Tax
It’s important to understand that TDS is not your total tax liability; it’s just an advance payment. You still need to:
- Report your FD interest when filing your ITR (under “Income from Other Sources”)
- Pay extra tax if you’re in a higher tax slab (e.g., 20% or 30%)
- Or claim a refund if TDS was more than your total tax liability
Final Thoughts
So, you know that TDS on Fixed Deposits interest is an advance tax deduction. One should not ignore TDS.
There are a few things to remember regarding TDS:
- TDS applies if the annual fixed deposit interest exceeds ₹40,000 (or ₹50,000 for seniors).
- The standard TDS rate is 10% (or 20% if PAN is not submitted).
- You can avoid it using Form 15G/15H or get a refund later.
- Always declare your FD interest in your income tax return.
So, all you need is awareness and smart planning. If you do so, you can make the most of your fixed deposits without letting TDS take away your earnings.