Taxation on Fixed Deposits

 

If your only source of income is interests on bank fixed deposits, impact on the Tax Deducted at Source (TDS) will be more if you are not managed the TDS efficiently. TDS is the tax deducted at the time of paying the income to you. It is applicable to the salaried employees, bank fixed deposits, rental income, etc. In the above list, TDS on the bank deposits are the one where you can manage efficiently to minimize your loss on the income.

If you have fixed deposits on your bank account, the interest income coming out of your deposits are taxable under the head other incomes. When you are submitting the income tax returns, it is your responsibility to add all the interest income and pay the tax. Note that, interest earned on your savings bank account is getting deduction u/s 80 TTA.

TDS on Fixed Deposits:

If you have fixed deposit in the nationalized bank or corporate, then interest income from the deposit amount is taxable and 10% will be deducted at the source. This process is called as Tax Deduction at Source (TDS). TDS is not only for the fixed deposit, it also applicable for the salaried employees and various other categories. RBI has made it compulsory to submit the PAN number for the fixed deposit to avoid TDS. If you are failing to submit the PAN, then bank will cut the 20% as the TDS amount. They will not consider to issue Form 16A and TDS tax credit also not available.

How to avoid TDS on Fixed deposits:

1. Deposit in different branches

Interest income is calculated based on the branch, if you have FD in the bank, up to Rs.10000 interest income in that branch is not taxable and Rs.5000 in case of corporate FD like Tata Motors or Mahindra Finance. So, financiers advise customers to split the amount deposit in the different branches to avoid TDS.

For the tax calculation, total fixed deposit on the same branch will be taken into the consideration. If you deposit your savings in the different branches of the same bank, each branch will be calculating separately for the TDS deduction. It is one of the way to avoid TDS.
2. Form 15H

If you are senior citizen (above 60) and your income is below the taxable income, then you can submit Form 15H to the bank branches to fully exempt from the tax. Note that if you are not submitting the forms, the tax will be deducted and you have get it through filing the tax returns. That normally takes another one year to refund the amount you paid as the tax. A fresh Form 15H needs to be furnished for each deposit that is placed with the Bank.

If your total income is below the tax slabs, then you need not pay any tax to the govt. What if your bank is deducting the tax on interest accrued on your fixed deposit. The reason is bankers don’t have the details about your taxable income, so they simply deduct the tax if you are not providing any extra documents for their consideration.

If you are senior citizen and your total income is under the tax slabs, submit form 15H to avoid any tax deduction. Others can submit the form 15G to avoid the TDS. Form 15G and 15H has to be submitted start of the every financial year. Note that, this must be submitted for the every financial year. If you forgot to submit the documents, TDS will be deducted.

In some occasions, tax is deducted even after you submitted the forms. It is because the bankers are not processed your documents. Then you have to claim for the refund process. Instead of that, depositing in the different branches makes sense when you are not under the tax slabs.
3. Form 15G
If you are age is below 60 and your income is below the taxable income, then you can submit Form 15G to the bank branches to fully exempt from the tax. Note that if you are not submitting the forms, the tax will be deducted and you have get it through filing the tax returns. That normally takes another one year to refund the amount you paid as the tax.
4. Interest Income for Minor
Deposits held by minors are also subject to TDS. The credit for the TDS can be claimed by the person in whose hands the minor’s income is included.

5. Joint account with Senior citizen

A non-senior citizen can open a joint account with senior citizen. In that case senior citizen must be the first account holder and they can get the prevail interest rates applicable to senior citizen.