Taxation on Fixed Deposit(FD)

✅ 1. Interest is Fully Taxable

• Interest earned on FDs is added to your total income and taxed as per your income tax slab

✅ 2. TDS (Tax Deducted at Source) on FD Interest

• Banks deduct TDS at 10% (if PAN is provided) when interest exceeds ₹40,000 per year (₹50,000 for senior citizens)
• If PAN is not provided, TDS is 20%

✅ 3. No TDS Deduction? File Form 15G/15H

• If your total income is below the taxable limit, submit Form 15G (for individuals) or Form 15H (for senior citizens) to avoid TDS

✅ 4. Tax-Saver FD & Section 80C

• 5-year Tax-Saver FD qualifies for ₹1.5L deduction under Section 80C, but interest remains taxable

If TDS (Tax Deducted at Source) is deducted from your FD interest, here’s how to handle it:

✅ 1. Check Your Total Tax Liability

• TDS is deducted at 10% (if PAN is provided), but your actual tax liability may be higher or lower
• If you fall in a higher tax bracket (20% or 30%), you may have to pay additional tax

✅ 2. Claim TDS Credit in ITR

• The deducted TDS is reflected in Form 26AS
• While filing your Income Tax Return (ITR), adjust the TDS against your total tax liability

✅ 3. Get a Refund If TDS Was Over-Deducted

• If your total income is below the taxable limit, you can claim a refund for the deducted TDS by filing your ITR

✅ 4. Avoid TDS Deduction (If Eligible)

• If your income is below the taxable limit, submit Form 15G (for individuals) or Form 15H (for senior citizens) to the bank at the beginning of the financial year

Yes, you can avoid TDS on FD interest legally if you meet certain conditions. Here’s how:

✅ 1. Submit Form 15G/15H (If Eligible)

• Form 15G → For individuals below 60 years whose total income is below the taxable limit
• Form 15H → For senior citizens (60+ years) if total taxable income is below ₹3L (₹5L with rebate)

✅ 2. Keep FD Interest Below ₹40,000 (₹50,000 for Seniors)

• Banks deduct TDS at 10% if interest exceeds ₹40,000 per year (₹50,000 for senior citizens)
• Split deposits across different banks or branches to keep interest below this limit

✅ 3. Invest in Tax-Free Options

• Consider investing in Tax-Saver FDs (5-year lock-in) under Section 80C (though interest is still taxable)
• Look into tax-free instruments like PPF, EPF, Tax-Free Bonds

✅ 4. Opt for Post Office FDs

• Post Office Time Deposits (except 5-year deposit) do not have TDS deduction, but interest is taxable

✅ 5. Choose Cumulative FDs to Delay TDS

• In cumulative FDs, interest is compounded & paid at maturity, reducing yearly TDS deductions

If your FD interest income is high, it can push you into a higher tax bracket and increase your tax liability. Here’s how you can minimize tax impact:

✅ 1. Distribute FDs Across Family Members

• Invest in spouse’s or parents’ name (if they have lower income) to reduce taxable income
• Senior citizens (60+ years) get ₹50,000 exemption on FD interest under Section 80TTB

✅ 2. Invest in Tax-Efficient Alternatives

• Tax-Free Bonds – Interest is completely tax-free
• PPF (Public Provident Fund) – Tax-free interest & principal (15-year lock-in)
• Debt Mutual Funds – LTCG taxed at 20% with indexation (after 3 years)

✅ 3. Opt for Cumulative FDs

• Instead of receiving annual interest payouts, go for cumulative FDs to defer tax liability

✅ 4. Open FDs in Different Banks/Branches

• Keep individual FD interest below ₹40,000 (₹50,000 for seniors) to avoid TDS deduction

✅ 5. Use Form 15G/15H (If Eligible)

• If total income is below the taxable limit, submit Form 15G (for individuals) / Form 15H (for seniors) to prevent TDS deduction

Yes, prematurely withdrawing a Fixed Deposit (FD) has tax consequences:

✅ 1. No Special Tax on Premature Withdrawal

• FD interest is taxed as per your income slab, whether withdrawn early or on maturity
• No extra tax is imposed specifically for premature withdrawals

✅ 2. TDS is Still Applicable

• If the interest earned exceeds ₹40,000 (₹50,000 for seniors) in a financial year, TDS @10% is deducted (20% if no PAN is provided)
• If TDS was already deducted before withdrawal, you may still need to pay additional tax if you fall in a higher slab

✅ 3. Lower Interest Rate on Premature Withdrawal

• Banks reduce the interest rate for the actual holding period, which means:
  • Interest is recalculated at the lower applicable rate
  • Excess interest paid earlier may be recovered by the bank

✅ 4. Tax Impact in Your ITR

• Even if TDS was deducted, you must report FD interest in your Income Tax Return (ITR)
• If the new lower interest reduces tax liability, claim a refund for excess TDS deducted

You can verify TDS deductions using the following methods:

✅ 1. Check Your Bank Statement

• Banks deduct TDS on FD interest quarterly or annually
• Look for entries labeled “TDS Deducted” in your bank statement

✅ 2. View Form 26AS (Annual Tax Statement)

• Step 1: Visit Income Tax Portal
• Step 2: Log in and go to ‘e-File’ → ‘Income Tax Returns’ → ‘View Form 26AS’
• Step 3: Download Form 26AS (reflects TDS deducted by banks)

✅ 3. Check AIS (Annual Information Statement)

• Step 1: Log in to the Income Tax Portal
• Step 2: Go to ‘Services’ → ‘Annual Information Statement (AIS)’
• Step 3: Verify interest earned & TDS deducted

✅ 4. Review Bank’s TDS Certificate (Form 16A)

• Banks issue Form 16A (quarterly) with details of TDS deducted & deposited with the IT department
• Download it from your net banking account (if provided by the bank)

✅ 5. Match TDS in ITR Before Filing

• When filing your Income Tax Return (ITR), ensure that TDS from Form 26AS matches your FD interest earnings

To claim tax benefits or exemptions on Fixed Deposit (FD) interest, you need the following documents:

✅ 1. Form 16A (TDS Certificate)

• Issued by the bank, showing TDS deducted on FD interest
• Download from net banking or collect from the bank

✅ 2. Form 26AS (Tax Credit Statement)

• Available on the Income Tax Portal
• Confirms TDS deposited with the Income Tax Department

✅ 3. Interest Certificate from Bank

• Provides total FD interest earned during the financial year
• Available via net banking or branch visit

✅ 4. Form 15G / 15H (If Claiming TDS Exemption)

• Form 15G → Individuals below 60 years with income below taxable limit
• Form 15H → Senior citizens (60+ years) with total income below ₹3L (₹5L with rebate)

✅ 5. FD Investment Proof (For Tax-Saver FD under Section 80C)

• If investing in a 5-year Tax-Saver FD, submit the FD receipt/certificate for ₹1.5L deduction under Section 80C

✅ 6. PAN Card (For TDS Verification)

• Ensure your PAN is linked with the bank to avoid higher TDS deduction (20%) instead of 10%