TDS on FD Interest: Limits, Calculation and Refund Claim Process

Fixed Deposits (FDs) are often considered one of the safest investment options because they offer fixed returns over a specified period. However, many investors are surprised when the interest credited to their account is lower than expected.

One common reason is TDS (Tax Deducted at Source) on FD interest. Banks and financial institutions may deduct tax from the interest earned on fixed deposits when it exceeds the prescribed limit under the Income Tax Act.

In this guide, we explain what TDS on FD is, the applicable limits and rates, how it is calculated, and ways to manage or reduce TDS liability.

What is TDS Deduction?

When TDS is deducted, the amount is reflected against the taxpayer’s PAN and can be adjusted against their final income tax liability while filing an income tax return.

When is TDS Deducted on FD Interest?

If your combined interest earnings across all FDs with a single bank exceed the applicable limit, the bank will deduct TDS. Here are the annual TDS threshold limits on FD interest:

Note: The interest earned may still be taxable according to the depositor’s income tax slab, even if no TDS is deducted, and must be reported under “Income from Other Sources” when filing your Income Tax Return (ITR).

What is the TDS Rate on FD Interest?

The TDS rate on fixed deposit interest depends on whether the depositor has provided a valid PAN to the bank.

The TDS rate applies only when the FD interest exceeds the applicable threshold.

How is TDS on Fixed Deposit Calculated?

Note: Banks calculate TDS based on the cumulative interest earned across all fixed deposits held by a customer with the same bank.

TDS on FD Calculation Example

Suppose an individual has a fixed deposit that generates ₹80,000 of interest during a financial year. Assuming PAN has been submitted and the applicable TDS rate is 10%:

In this case, the bank may deduct ₹8,000 as TDS and credit the remaining interest amount to the depositor. The TDS deducted can later be claimed as a tax credit while filing the income tax return.

How to Avoid TDS on FD Interest?

If your total income is below the taxable limit, you may be able to avoid TDS deduction on FD interest by submitting the appropriate self-declaration form to the bank.

• Submit Form 15G: Individuals below 60 years of age can submit Form 15G if their tax liability for the financial year is nil and they meet the eligibility conditions.
• Submit Form 15H: Senior citizens can submit Form 15H if their estimated tax liability for the financial year is nil.
• Link PAN with Your Bank Account: Providing a valid PAN ensures that TDS, if applicable, is deducted at the standard rate rather than the higher rate that applies when a PAN is not submitted.
• Spread Deposits Across Eligible Family Members: Some investors distribute investments among eligible family members to manage interest income. However, tax rules such as clubbing provisions may apply in certain cases, so investors should consider the applicable tax regulations.
• Track Total Interest Income: Monitor the total interest earned across all fixed deposits and banks during the financial year. This can help you estimate potential TDS deductions and plan your taxes accordingly.

How to Claim TDS Credit or Refund?

If TDS has been deducted from your FD interest, you can claim credit for the deducted amount while filing your Income Tax Return (ITR).

The TDS deducted by the bank is linked to your PAN and is reflected in Form 26AS and the Annual Information Statement (AIS).

Steps to Claim TDS Credit

1. Check the TDS details in Form 26AS or AIS.
2. Report the FD interest income while filing your ITR.
3. Claim the TDS amount already deducted by the bank.
4. Pay additional tax if your tax liability exceeds the TDS deducted.
5. Claim a refund if the TDS deducted is higher than your actual tax liability.

What to Do If Your TDS is Not Reflecting?

If the TDS deducted on your FD interest is not reflected in Form 26AS or AIS:

• First, check whether the bank has reported it correctly against your PAN.
• If the income was already declared in an earlier year but the TDS was deducted or reported in a later year, you may be able to claim the credit using Form 71 on the Income Tax e-Filing portal.
• It must generally be filed within 2 years from the end of the financial year in which the TDS was deducted.

How to Track Your Refund Status?

If excess TDS has been deducted from your FD interest and you have claimed a refund while filing your Income Tax Return (ITR), you can track the refund status online.

1. Visit the Income Tax e-Filing portal.
2. Log in using your PAN and password.
3. Go to the filed returns section.
4. Select the relevant assessment year.
5. Check the refund status displayed against your return.

You can also track the refund status through the NSDL or authorised refund processing portal, if applicable.

Note: Refund timelines may vary depending on return processing and verification requirements.

TDS Deducted on Spouse’s FD: Who Can Claim the Credit?

The person who is required to include the FD interest in their taxable income is generally entitled to claim the TDS credit.

In such cases:

• The FD may be in the spouse’s name.
• The TDS may be deducted against the spouse’s PAN.
• The interest income may be taxable in the hands of the person who provided the funds.

To claim the TDS credit correctly, taxpayers may need to follow the applicable income tax rules and maintain supporting records regarding the source of funds.

Final Thoughts

TDS on FD interest helps the government collect tax at the source, but it does not always represent your final tax liability. If excess TDS is deducted, you can claim it as a credit or refund while filing your Income Tax Return. Before choosing any investment, it is important to understand how returns are taxed so you can estimate your actual post-tax income more clearly.

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TDS on FD Interest : FAQs

Source: MoneyControl