How to Avoid TDS( Tax Deduction on Source) on Fixed Deposit FD in India

TDS on Fixed Deposit

Fixed Deposit( F.D)- Fixed Deposit are the fund on which the interest is paid for the fixed term & the funds can’t be withdrawn before maturity, & if the fund is withdrawn before maturity giving notice, there will be a huge loss of interest.
As all know, banks make fixed deposit to customer which have higher rate of interest compare to saving account. But sometimes we all see the bank deduct some amount of fixed deposit as TDS (Tax Deducted at Source). To get back the Tax from Income Tax Department is not easy and most of the people including me avoid doing so. There are some tips to save the interest on fixed deposit from TDS.
What is the procedure to deduct TDS on F.D?
1-      The bank deducts TDS on fixed deposit only when the interest amount on fixed deposit exceeds Rs. 10000.
2-      The TDS rate on the fixed deposit is 10%.
3-      Bank will pay the remaining amount of interest like if you get 20000 Rs interest on your deposit Bank will pay 18000( 20000-10% of 20000).
4-      For getting the refund of your Tax amount, one need to be files the income tax return
.

How to Avoid TDS on Fixed Deposit

1-      TDS is deducted at bank branch. So it is advisable to break up the deposit and make the F.D in some branch instead of making it in one branch with larger amount.
2-      Make the F.D of small amount in different branches. It will save your interest as lesser interest less chances of deducting TDS.
3-      You can submit Form 15H. You can submit form 15H if you haven’t any taxable income in previous year. This form is for below 65 years of age.
4-      You can submit Form 15G. You can submit form 15G if you haven’t any taxable income in previous year. This form is for below 65 years of age.
5-      All these forms should be submitted before 31^st march of the year. If these forms are submitted on time, the bank will not deduct TDS.

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Complete guide to TDS on fixed deposits in India

Fixed deposits earn a higher rate of interest than regular savings account. Interest is also a source of income and hence is governed by the income tax laws of India. The income tax authorities give direction to banks and financial institution issuing fixed deposits to deduct the income tax at source on fixed deposits if they qualify.

When do the bank deduct TDS on a fixed deposit?
If the total interest earned on all your fixed deposits in a bank is greater than Rs. 10,000 in a financial year, you are liable for TDS and the banks will deduct the income tax at source. The tax liability for the purpose of TDS is determined at the branch level. Even if a fixed deposit is in the name of a minor it will attract TDS and in this case the credit for TDS can be claimed by a person managing the minor's income. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year.
The rate at which TDS is deducted varies according to the category of account holders.
TDS rates for a fixed deposit held by resident individual and HUF
If the fixed deposit holder is a resident individual and HUF, for a payment of up to 10 lacs, TDS will be deducted at a rate of 10% in addition to it there is an education cess of 3% which takes the total deduction to 10.3%. For a fixed deposit of resident individual or HUF with payments equal to 10 lacs or more the TDS rate is 10%, in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 11.3%
TDS rates for a fixed deposit held by corporate body
If the fixed deposit holder corporate body, for a payment of up to 1 crore TDS will be deducted at a rate of 20% plus an education cess of 3% which takes the total deduction to 20.6%. For a fixed deposit of corporate body with payments equal to 1 crore or more the TDS rate is 20% in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 22.6%
Effect of change in fixed deposit portfolio on TDS
Any change or enhancement in fixed deposit portfolio affects the TDS liability. If your changed portfolio earns a interest which falls under the ambit of income tax laws, you will be liable for TDS on your current portfolio. In case the interest on your current portfolio is not sufficient enough to cover the TDS, it will be deducted from the principal amount.

What to do if you think that your TDS on fixed deposit is exempted?
If a fixed deposit holder finds that his total interest income from fixed deposits won't fall within the overall taxable limits, he should immediately inform this to the concerned bank and ask them not to deduct the TDS from his fixed deposit account. This can be done by submitting a form as per Income tax regulations. Individuals, claiming such exemption have to submit form 15H, companies form 15AA, association of companies form 15AA and trusts must provide details in form 15AA. The form 15AA can be obtained from the assessing officer of the income tax department. In case there is an amount deducted by way of TDS on the interest earned on you fixed deposit, prior to your submission of application of exemption with the required documents, it won't be refunded. However, in all such cases banks will issue TDS certificates which can be used by the fixed deposit holders, while filing his income tax. If you open a fresh fixed deposit account with the bank and want exemption you will have to submit details in a new form. The older one submitted for an existing fixed deposits won't suffice.
For any TDS deducted by the bank, it will issue a Form 16A which can be used to substantiate the facts, while filing the income tax returns.
Remember, that any exemptions claimed don't help you save tax, since in your final Income Tax Return you would end up paying the tax with possibly interest penalties.

1. Tax Deduction at Source(TDS)

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.

2. 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.

3. Form 15H

If you are senior citizen(above 65) 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

4. Form 15G

If you are age is below 65 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.

5. 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.

6. 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.

Remember, now a days as and when a bank pays an interest on the fixed deposits, it checks whether the account is exempted from TDS. If it is not exempted, then TDS is deducted. You should also remember that TDS is deducted even on interest accrued (but not yet paid) at the end of the financial year i.e. 31st March every year.

In case of resident individual and HUF, for a payments upto Rs. 10 lacs, TDS is deducted at a rate of 10% plus education cess of 3% (thus total deduction is at the rate of 10.3%). However, for resident individual or HUF with interest payments equal to Rs.10 lacs or more, the TDS rate is 10%, plus surcharge of 10% and educational cess of 3% (thus total deduction is at the rate of 11.33%). Thus, the present applicable rates are : -

Resident Individuals & HUF	Tax Rate	Surcharge	Education Cess	TOTAL
Payment upto 10 lacs	10%	----	3%	10.30%
Payment equal to & above 10 lacs	10%	10%	3%	11.33%

If one feels that your total interest income for the year will not fall within overall taxable limits, then one should inform his / her bank not to deduct TDS on deposit, by submitting a form as per the provisions of the Income Tax Act. The forms required for different categories have been listed below:

Category of Account	Form Required
Individual	15H
Trusts	15AA

Remember that : -
(a) You have to obtain 15AA Form from the Assessing Officer of Income Tax department.
(b) Even if you submit the 15H / 15AA Form, the tax which has already been deducted by way of TDS during the year prior to submission of 15H Form, is usually not refunded by the ban as they are under obligation to deposit this TDS within a time bound period. . However Certificates will be issued to the customers which can be used while filing his/her tax return.

15H/15AA Forms are valid only for the particular financial year in which they are issued.
Usually banks ask that a fresh15H form is needed to be furnished for each deposit that is placed with the Bank
However, if the depositor furnishes form 15H (which is available free of cost from all banks) and therein declares he / she does not have tax liability at all, the bank will not deduct any TDS from the interest earned by the depositor.

Thus, the above, in a nutshell indicates that if the interest income from a bank branch is more than Rs.10,000/- (and you have not submitted form 15H), the Bank will deduct the TDS. For any TDS deducted by the bank, it will issue a Form 16A which can be used while filing the income tax returns. Such TDS is also reflected in the AS26 form which can be generated from income tax website.
Thus, in case you do not want the TDS to be deducted, you can split your Bank Deposits in two or more Banks or branches so that the total interest earned at one branch is less than Rs.10,000/-. (However, remember this does not mean that income earned from such deposits is exempted from income tax. You have to club all such interest income and add to your other income, and pay the tax while filing the income tax return.)

People prefer to deposit their savings in fixed deposits as such deposits earn higher rate of interest than normal savings account. However, they face the problem of TDS (Tax Deducted at Source) by banks for fixed deposits.

In Income Tax law, one of sources of the income is "Interest Income" and thus directions issued by income tax authorities have to be followed by all bankers.

What are the rules for deducting tax on fixed Deposit ? When do the bank deduct TDS on a fixed deposit? :

Banks deduct tax (TDS), if the total interest earned on all your fixed deposits in the bank is greater than Rs.10,000/- during a financial year. The tax liability for the purpose of TDS is determined at the branch level. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year. The rate at which TDS is deducted varies according to the category of account holders

Difference between form 15G and 15H (Free Download form 15G) (Free Download form 15H)

The form 15G and 15H are submitted to banks by depositors who do not want that TDS be deducted from their interest earned on fixed deposits. A person who is below 65 years can file the Form 15 G . However, only a person of 65 years or more is eligible to file Form 15 H .However, this is not the only difference, but some other major issues relating to 15G and 15 H. are discussed below:-

15G CAN NOT BE filed by any person who gets AGGREGATE income from Dividend or Interest or Interest other than Interest on securities or on Securities or withdrawal or surrender value of pension plan of insurance for which deduction u/s 80CCA was availed,
- exceeds Rs 1,00,000 (maximum exempt) ; or
- tax on estimated total income including the income for which 15G is submitted of is NOT nil.
In nutshell we can say that anybody whose tax on estimated income is not NIL or having income from interest or surrender value of pension plan above Rs 1,00,000/-, can not file DECLARATION u/s 15G .This is clear from the point 3 & 4 of the of From 15 G .

However, if you are eligible and also fulfill the condition , the payer can not deduct the tax even if it is above 10,000

Senior Citizen who are only eligible to file the Declaration in Form 15H has no such conditions .This form can be submitted by senior citizen only if t tax on estimated income of the senior citizen is NIl. This is clear from point 4 of the form 15H, which reads as under:-

" 4. that the tax on my estimated total income, including *income/incomes referred to in the Schedule below computed in accordance with the provisions of the Income-tax Act, 1961, for the previous year ending on relevant to the assessment year _____________ will be nil"

Difference between Form 60 and Form 61 (Free Download form 60) (Free Download form 61)

FORM NO. 60 :[See second proviso to rule 114B] : Form of declaration to be filed by a person who does not have a permanent account number and who enters into any transaction specified in rule 114B. Form of Declaration to be filed by a person who does not have either a Permanent Account Number or General Index Register Number and who makes payment in cash in respect of transactions specified in clauses (a) to (h) of rule 114B

FORM NO. 61
: [See proviso to clause (a) of rule 114C(1)]. Form of declaration to be filed by a person who has agricultural income and is not in receipt of any other income chargeable to income-tax in respect of transactions specified rule 114B. Form of Declaration to be filed by a person who has agricultural income and is not in receipt of any other income chargeable to income tax in respect of transactions specified in clauses (a) to (h) of rule 114B

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FAQs on Fixed Deposits

Q1. Can I get a loan against a Fixed Deposit?

Yes, you can. Most banks offer a loan against fixed deposits. By using the fixed deposit as a collateral for the loan you can get a loan at lower rates. The rates are usually pegged at a few percentage points higher than the fixed deposit. Usually banks advance up to 90% of the fixed deposit being held in a loan.

Q2. When do I become liable for TDS?

If the aggregate interest income from fixed deposits that you are likely to earn for all your deposits held in a branch is greater than Rs 5,000 in a financial year, you become liable for TDS.
Note: Tax liability for TDS purpose is determined at branch level. 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.

Q3. How to avoid loss of interest on Overdue Term Deposits?

The best way of avoiding loss of interest on overdue deposit is to give renewal instructions before the due date. Remembering various due dates and ensuring that renewal instructions along with original deposit receipts reach the bank is cumbersome. Many banks have an automatic renewal scheme wherein the entire amount (principal + interest) is reinvested into a fixed deposit of the same tenure on the maturity date. The original deposit receipt is retained by the bank and the depositor has an option of not renewing by giving prior instructions.

Q4. Does any change or enhancement in my deposit portfolio affect TDS liability?

Yes. If the change or enhancement in your deposit portfolio earns a cumulative interest along with that of the earlier portfolio greater than Rs 5,000 you will be liable for TDS on your current portfolio.
Note: If interest on the current portfolio is not sufficient to cover TDS, it will be recovered from the principal

Q5. At what rate is TDS deducted?

TDS on fixed deposits is deducted at the following rates for the following category of account holders:
Type of Account Holders - TDS (%)
Resident Individuals, Sole Proprietorship, Trusts, Association of Persons, Hindu Undivided Family (HUF) - 10.2%
Domestic Companies- 20.4%
NRO Deposits - 30.6%
Note: With the exception of FCNR (B) Deposits and NRE F.D's, TDS is deductible on every other foreign currency deposit. The TDS rate applicable will depend on the category of the account holder as per the above schedule.

Q6. How and when can I apply for exemption on TDS?

If you believe that your total interest income for the year will not fall within overall taxable limits, you should inform the Bank not to deduct TDS on deposits. You can do this by submitting a form as per the provisions of the Income Tax Act. The forms required for different categories have been listed below:
Category of Account Form required
Individual 15H
Companies 15AA
Association of Companies 15AA
Trusts 15AA

Q7. When does the Bank issue a TDS Certificate?

A consolidated TDS Certificate in Form 16A, for TDS deducted during a financial year will be issued in the month of April of the following financial year.

Q8. What happens to accounts of a NRI's NRE or FCNR accounts which he/she has opened abroad after his/her return to India?

A returning Indian's NRE/FCNR accounts is usually designated as a Resident account. Most banks allow these deposits to continue to run till maturity at the contracted rate of interest.

Q9. What documentation is required to open a senior citizen FD?

While opening the senior citizen fixed deposit account, the customer needs to provide proof of age - to ensure that account holder is a senior citizen. He can provide either of the following:
Secondary School Leaving Certificate (Class 10)
LIC Policy
Voters Identity Card
Pension Payment Order
Birth Certificate issued by the competent authority
Passport / Defence ID Card / Govt ID Card (Provided they have the cardholder's photo,signature and date of birth)
PSU issued ID Cards
Senior Citizen Cards

Q10. What is the maximum deposit amount insured by the DICGC?

Each depositor in a bank is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank's license or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

Q11. When is TDS deducted?

TDS is deducted every time the Bank pays interest during the financial year and the interest earned for the year is more than Rs 10,000 in a single branch. In addition, TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31 March.

Q12. Can a senior citizen open a joint account with a non senior citizen and still avail benefits ?

Yes, the account can be opened joint with a non-senior citizen, provided the first account holder is a senior citizen. This joint account would be eligible for the preferential interest rates for senior citizens fixed deposits.

Q13. Can deposit insurance be increased by depositing funds into several different accounts all at the same bank?

No. All funds held in the same type of ownership at the same bank are added together before deposit insurance is determined. If the funds are in different types of ownership(single account and joint account) or are deposited into separate banks they would then be separately insured.

Q14. Where do I get rates for deposits more than 15 Lakhs ?

Deposits more than 15 Lakhs are priced on a daily basis and the treasury departments of the various banks release the rates for the day. You can approach the bank directly to get your quote for the day.

Q15. Can I open a fixed deposit account without having a savings account at the same bank ?

Yes, you can open just a fixed deposit account relationship at any bank. The documentation required at a new bank would be the same as opening a new account where identity and address proofs might be required. At a bank branch where you have an existing account you would need just a cheque or an electronic transaction to make the fixed deposit.

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