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How to Avoid TDS on Interest on Fixed Deposits (Bank FD)

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Bank Fixed deposit is an all-time favourite investment in India as it provides a decent fixed return for the fixed period and relatively safer as compared to other forms of investment products.  

Specially, in current interest rate scenario, the fixed deposit rates are quite lucrative (8.5 – 10%).  However, it is likely that rates will go down further, so it is advisable to lock-in your interest rates if you want to invest in FD for longer term.

Banks are required to deduct Tax (TDS) @ 10 % if the interest earned on FD exceeds Rs 10,000 in a financial year. This could have a significant impact on the amount received at maturity.

I am sure that everyone wants to save tax and to avoid any deduction from their hard earned money. Most common queries, I received from friends are:

  1. My Bank is deducting TDS on FD, can’t I avoid it?
  2. Do I really need to pay tax on Bank FD Interest?
  3. My total income in under taxable limit, how should I get the refund back?

 Let me try to explain answer to above queries in addition to few ways to avoid TDS on Interest on fixed deposits.

 

1. Interest earned on Bank FD is Taxable

First of all, you should know that any interest earned on bank FD is taxable & should be included in your taxable income.

Even if the TDS has not been deducted by bank, you need to include the income from fixed deposits in your tax returns and pay the tax as per your tax slab.

If the TDS has been deducted by bank @ 10 %, you still need to include the income from fixed deposits in your tax returns and claim the TDS amount in appropriate column. For e.g if you are already in 30% tax slab, any interest earned on FD will also be attract 30% tax (even if tax is deducted by banks @10%).

 

2. Tax Deducted by Banks (TDS)

Banks are required to deduct TDS at 10%, if the total interest earned on your fixed deposits in a bank branch exceeds Rs 10,000 in a financial year.

Make sure than your PAN is updated with the Bank otherwise TDS will be deducted @ 20%.

TDS is also applicable on the interest accrued. At the end of fiscal year (31-Mar), tax is deducted on the interest accrued on the fixed deposit(s), even if this interest has not been paid / credited. Check your 26AS to ensure that tax is deducted and paid by bank before you file your return.   

Read my post- How to check Form 26AS

 

3. So, is there any way to avoid TDS?  

Yes.  An investor can save TDS by following ways: 

a. By submitting Form 15G/15H

If the investor’s estimated total income is below exemption limit, he can submit Form 15G, then the bank would not deduct any TDS from the interest earned. For senior citizens, the requisite form is 15H to avoid TDS.

You need to fill this form at the beginning of each financial year providing details of fixed deposits and submit to your bank.

Read my post  -  Who can submit Form 15G / Form 15H to avoid TDS on Bank FD Interest.

 

b. By splitting FD across Banks & branches

Another easy way adopted by many investors to avoid TDS, is to split their FD across banks so that the interest earned does not exceed the Rs 10,000 limits.

You can also spread FD across various branches so that the interest earned in a particular branch is below Rs 10,000 in a financial year.

However, please note that this will just avoid TDS. You will still need to include this while filing your income tax returns for the year. So, if your income is taxable, then you will need to pay taxes according to your income tax slab.

Suppose you want to invest Rs 1.5 lacs in FD giving 10% interest. If you open FD in one bank / branch, the interest earned per annum will be Rs 15000 and TDS will be deducted. However, you split your investment across 2 banks – Rs 75000 each, then the interest earned on each FD will be Rs 7500 only which will be below TDS limit and no TDS will be deducted by Banks.

tds-on-fd

See in the screenshot above, just by booking FD in different branches, the TDS is not deducted even total interest in more than 10000 (but less than 10000 per branch)

c. by Timing the FD

You can also avoid TDS by timing your FD so that the interest earned in one financial year does not exceed Rs 10000.

Suppose you want to invest Rs 1.5 lacs in FD giving 10% interest. If you start this FD for 1 year on 01-April-2013, then the interest earned in one financial year (April 13 – March 14) will be Rs 15000 and TDS will be deducted.

However, if you open this FD in Oct 13, then the interest will be split in 2 financial years (Oct13-Mar14 & Apr14-Sep15) and no TDS will be deducted.

 

4. How to get TDS refund.

If your bank has deducted tax on the interest earned and your tax liability is NIL , then you can claim refund by filing your income tax return. Check your form 26AS to ensure that tax is deducted and paid by bank before you file your return.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please ask in our Wealth18.com forum

http://wealth18.com/forum/index.php

About Vivek Jain

Vivek is a Chartered Accountant with 13+ years of Global Experience. He loves to write about Personal Finance, Wealth Management, Taxation etc.

90 comments

  1. Beneficial advice

  2. I have doubts about your point 3(b). I might be wrong but I don’t think splitting FD accounts in different branches of the same bank will save you from TDS deduction. Splitting FDs in different banks does. Can you please check and confirm ? Thanks a lot.

    • Hi Rohit,

      If you see the screenshot in Point 3(b), the total interest is more than Rs 10000, but no TDS is deducted as it is split across different branches.

  3. Hi,

    Thanks for this article, found it very useful. I have one doubt regarding point 3(c). I started a FD on 3rd March 2014 for 1 year, which will mature on 3rd March 2015. Now I want to start another FD in May 2014 for 1 year. So will the previous FD be taxable in 2014-15 and May 2014 FD will be taxable in 2015-16. or both will be taxable in 2014-15. Please clarify. Thanks in advance.

    • Hi Hemant, Ideally the FD interest is taxed on accrual basis. So, on 31 March every year, bank will calculate Interest on all open FD and should deduct TDS.

      FY 2013-2014 : First FD interest accrued till March 2014
      FY 2014-2015 : First FD interest accrued during April 2014 – 3 Mar 2015 PLUS 2nd FD interet from May 2014 – Mar 2015
      FY 2015-2016 : 2nd FD interest from April 2015 to May 2015

      Check your Form 26AS every April to make sure that Interest is credit & if any TDS is deducted by Bank

  4. Hello,
    I have one query, My gross salary for F.Y.2014-15 was: 247396. I had shown investment of 72657 under section 80C. i Also have a fixed deposit. Interest earned on F.D. for this year was 11237. So TDS deducted for 1124. How can I get the refund. Do I need to file Return?

  5. Thank you Vivek.

  6. Hi,
    My total gross salary to say F.Y 2013-2014 is 1,50,000. Interest earned on FD was 12567 and TDS deducted was Rs 1256.7. Now how I get the refund. Whr and when do I file the return?

  7. Hi Vivek,

    i have an NRE rupee account account. as of now my status is Resident Indian (temporarily), i am having query – for this financial year my status would be RI

    in this case do my invested NRE Fixed deposit’s interest become taxable ?

    if above is true then person outside india (NRE) doesn’t attract tax on FD’s interest and attract tax when he/she is in india and RI.

    kindly let know if any solution to avoid tax. please note FD’s are invested as NRE FD’s.

    • Hi Chint,
      Are you travelling out of India for Short term assignemnts or are you employed outside India??
      How are you calculating your Residential status in a financial year ?

      • Thanks Vivek,

        I normally travel for long term (1+ years). i am calculating NRI / RI status based on below

        1) 180 days outside India or not
        2) when returning India during end of financial year one shall not be staying more than 60 days in remaining days of financial year

        Regardless of above i may be staying more than 180 days in India during 2014-2015 financial year. hence RI for 14-15

        i have recently invested NRE FD (for 2 years in April 2014), considering above i would be RI for this year. and would need to travel in April 2015 (for 1 year) hence NRI for next financial year (15-16).

        Please can you advise, what shall i do to keep my FD as NRE only considering above fluctuation in resident status ?

        • Hi Chint, As your residential status is changing every year, it is little bit complex to advise.
          Ideally, you need to notify bank, when you are resident, so that they can mark the FD as Resident.

          However, even if you donot notify them, they will continue it as NRE FD and tax free.

          • Thanks Vivek. i am fine till bank keeps it as NRE FD. Was concerned if bank changes my account status to RI, that may implicitly convert my FD’s as RI FD as against NRE FD.

          • Bank will not change the status unless you communicate to them.

  8. Hi I have a doubt here.
    If I keep FD of 1.5 Lakhs interest earned is say 15k for 1 year. But if i keep for only 1 month it wil be 1.7K will that be considered for TDS?

    • Hi Kiran,

      Only Interest earned will be considered for TDS. SO if you keep FD for 1 month & earn Rs 1700, no TDS will be deducted by bank. Bank will only deduct TDS if the Interest earned is more than Rs 10000.

  9. Hi, as you have said that banks check the open F.D’s to calculate the TDS on interest on F.D’s. Now my question is if I make 3 – 4 F.D’s in one financial year and all the 4 F.D’s are maturing before 31st march. Also the interest calculated on all F.D’s does not cross 10000. Then do I need to submit the 15G form or anything else to the bank?

    • If the total interest for that year is not mroe than Rs 10000, then YOU DONOT need to submit Form 15G. No TDS will be deducted by bank.

  10. I have done a FD of Rs.4,00,000 on 31.05.14 at SBI for 35 month on 9% . I did it in my wife name & PAN .

    She is not engaged in any other income. Do the bank will still deduct 10% or she has to submit 15 G.

    Please suggest.

    • Hi Somon,

      Yes, the bank will deduct TDS as the Interest per year is more than Rs 10000.

      1) As she have no other income, she should submit Form 15G to the bank to avoid TDS.

      2) Even if TDS is deducted, she can file IT returns & claim refund.

  11. hello,
    i booked 3 FD for one year 10 days
    1. 50000/- on 4th April 2014
    2. 50000/- on 7th April 2014
    3. 50000/- on 22nd May 2014
    Now i am going to submit 15G foam, but i am confused, should i have to submit this Foam again in next year before FD time completed or i have to submit this only for 2014-15 financial year.

    • You need to submit Form 15G only for FY 2014 – 2015. As next year, your interest will be less than Rs 10000, no TDS is due so no Form 15G is needed.

  12. Dear Sir,

    I want to invest 10000 in Tax Saving FD for one year ,will Bank deduct TDS on interest.

    Thanks ,
    Sagar

    • If you invest Rs 10000 in FD, your interest will not exceed Rs 1000, so no TDS is applicable.

      TDS will only be deducted when Interest is more than Rs 10000 (not the investment)

  13. Dear Sir/Madam,

    My total taxable income is 7,40,000 which is under 20% tax slab.

    Now I got 10 lakhs rupees from equity shares (from long term investment) and I would like invest the same in fixed deposit.

    What are best investment options so that I can save maximum tax.

    Thanks in advance for your answer

  14. Gnana Sundara Guru

    I have FD of nearly 90000 in a bank account which fetches me approx Rs 8,000 p.a of interest and hence no TDS is presently deducted. Now if i invest 10,000 per month in an RD, the total interest payment (FD+RD) in the financial year will be exceed Rs 10,000 p.a. In this case, will TDS be deducted from FD?

  15. Hi, my mother is a housewife and she has no earning other than interests which she will earn from FD. Now we are planning to deposit 20lakhs Rs in FD A/c. Will it deduct TDS and is it required to file return in her case.

    • Hi Ruchi, It will also depend on the age of your mother.

      You can submit Form 15G/H to avoid TDS . Read the article below.

      http://wealth18.com/who-can-submit-form-15g-15h-to-avoid-tds-on-bank-fd/

      • Hi Vivek thanks for replying. She is 50 years old .I assume that if I’m opening FD A/C in bank with 9% interest compounded annually it will amount to 1.8lakhs(approx) so that is below the limit of 2 lakhs.However recently she has earned interest of approx 80k form Savings Bank A/C. Will that be accountable.

        Will she be still be in a condition to submit 15G.My main aim is to avoid TDS.

        • Hi Ruchi, You have to see the total interest in 1 financial year. If for FY 2014-2015, the interest is less than Rs 2 lakh, then you can submit Form 15G

  16. In case an employer (school) does not have a TAN number , then an employee(teacher) while filling Schedule 1 of ITR-1 what does fill under column TAN No ?

    • If employer is deducting TDS then TAN is must, otherwise there will not be any TDS deducted by employer.

      • Thank you . Firstly ,Employer (school) is not deducting TDS. Secondly ,yearly salary of employee is about Rs 1,00,000/- which is not taxable . Yet the employee wishes to file ITR-1 . How does the employee do so ?

  17. Hi ,

    If deposit 25000 in form of FD @ 9.75 ROI each month starting from Aug’14 for the next 1 year on my mothers name ,will i get the advantage of TDS exemption on intrest amount

    Please answer clearly with the example as i am new to this.

    • Hi Mohan, If you deposit Rs 25000 as FD with 9.75% interest, you will get approx Rs 1800 in FY 2014-2015
      So Bank will not deduct TDS.

      However, all FD interest is taxable and should be included in “Income from other Sources”

      Whether your mother has any other income ? There will be no tax upto Income of Rs 2 lakh….

  18. Hi Vivek,
    If the interest earned from FDs is less tha Rs 10,000 , then banks do not deduct TDS, but whether this income is subjected to tax?

  19. Iam getting Rs 8000 interest on FDs and Iam in 20% tax slab but adding this interest, income goes to 30% slab. Whether the tax is to be calculated at 20% or 30%.

    • Hi Shilpa, You need to add this under “Income from other sources” and then calculate tax on total income.

      You donot need to calculate tax separately on FD Interest.

  20. I have taken Tax saver FD 5 years back. Invested 50,000. On Maturity i got an interest of 26000. There was no deduction from bank. My Query is, will the interest taxable? Kindly clarify.

  21. Abhishek Pramanik

    Good Knowledge.. Income tax in India is now become a tough task to understand.. It is surprising that the tax payers are not having much knowledge about the deductions mode..

  22. I have a query! Let us suppose that i have booked a FD in any bank for short term:
    Amount = 180000
    Interest = 10%
    Term = 6 -Month
    From April – Sept
    Interest =9000 (Non – Taxable)
    And On maturity if i withdraw it. (FD Account closed)

    And if the same amount FD in same bank, if i booked for Next 6 month then the again i will get the 9000/ interest.
    So, Bank will deduct TDS on it or not?

    Total Interest = 18000/
    But first FD was closed.

    • Bank will deduct TDS irrespective of number of FD. As long as total FD interest 9across all FD in same branch) is more than Rs 10000, Bank will deduct TDS.

  23. I am in 20%slab . bank has cut 10 TDS on around 32000 rs (interest on FD)
    1) which form I should use ITR-1 or II
    2) which challan I should file?
    thanks, I find yr website very informative.

  24. idbi bank has already deducted the TDS for fixed deposit and less amount has been credited for Monthly interest scheme.This month’s interest is the first time as last month I made the fd whose monthly interest is arround Rs.4000 per month.I haven’t fill up the form 15G yet.If i submit the form now,will they refund the TDS to my savings account.

    • Hi Debashis, They will not refund you the TDS.
      However, if you submit Form 15G now, they will not deduct TDS on future interest payment.
      You can always file your Income Tax return and claim the refund if excess tax is deducted.

  25. I’ve withdrawn PF this year(within three years). Whether this amount is taxable and which ITR Form is to be followed if it is taxable!!

  26. Hello Vivek,
    Greetings
    In the last FY 2013-2014, approximately Rs 81,000 was deducted as TDS from my commissions payable by different companies for bringing export orders for them. One company deducted (January 2014) Rs 6,900 as TDS for the same reason but not reflecting in 26AS as of today. This company say they paid (deducted TDS) to Income tax buy yet to be posted online and this takes time. Since my income tax filing is due in this month, my question is whether can I add this Rs 6900 to my already uploaded Rs 81,000 in calculating refund from income tax. Mine is a proprietorship export consultancy. I don’t have to pay tax again as my TDS is more than the tax that I ought to pay after calculations. I don’t want to loose this Rs 6,900. If my question is not clear please reply so that I can clarify before your answer.

    Many thanks for your time.
    Raj

    • If they have paid in Jan 2014, that should have been reflected around April next quarter) .
      It seems that either they have not paid the TDS to govt or not filed their TDS returns.

      If you claim TDS which is not reflected in 26AS, there are chances that you will get demand notice for that amount. As that TDS is not showing in IT dept website.

      So you need to contact your client to get TDS certificate before you claim that amount.

      • Sir
        Thank you for the reply.
        They told me about 2 weeks ago that they paid TDS late and paid interest also. I believe they paid TDS late to Govt.

        1. Can I wait for a few more weeks for this credit to appear in my 26AS. (As I said earlier, my TDS is more than the tax I need to pay and as such need not pay further tax before the deadline.)

        or

        2. Can I go ahead with tax filing including this amount believing them. By the time Govt. process my refund after a few months, this 6,900 would be showing in my 26AS.

        3. Can you tell me if the refund is done by software automatically based on PAN # or an officer will go through each application and process refund manually.

        4. Can I take advantage of this TDS next FY 2014-2015.

        • 1) It is better to file return before due date.
          2) You can claim this 6900 and claim refudn
          3) Most refunds is done automatically by software. But high amount may be scruitnised
          4) Youc an carry forward the TDS next year. There is a column in the Form. But that will be applicable when you can see that TDS is deducted in advance. So not applicable in your case.

  27. Hi Vivek,

    Need a clarification regarding Form 26AS. Total amount paid / credited shows an amount Rs.33,066 on which 3306.60 has been deducted and shown under tax deducted for FD interest. My understanding is that there is an exemption of Rs. 10,000/- on interest income from FD. If its true, how much should I consider for calculating the tax. Will it be Rs. 33,066 or Rs. 26,033 (33,066 minus 10,000 exemption). My income falls in 30% bracket. Please clarify.

    Thanks
    Vishal

    • Sorry, please read as Rs. 23,066/- instead of Rs. 26,033

    • Hi Vishal, There is no exemption for FD Interest.
      u/s 80TTA, exemption for Rs 10000 is for SAVING BANK Interest only.

      You need to show Rs 33066 as Income from other sources and claim TDS of Rs 23306 in TDS section.

      You may need to pay additional tax based on Tax calculation

  28. I went through ur replies.Thanks for the very useful informations

  29. Hello Vivek,
    I have 5,00,001 fixed deposit in post office which is opened on april 2008 it got matured on april 2014. How much money i will receive when i take my money after maturity?as they said 5% bonus when matured. will i get interest from may 2014 to till now.
    Thanks in Advance.

    • Hi Ratna, PO Fixed deposit is normally for 5 years. But you said it was for 6 years ?

      Can you please check which Investment it is and what is the duration. It should also show the Interest rate.

  30. Hi,

    Have some clarification regarding FD deposit.

    My mother doesn’t earn. For her expenses and other, am gifting here a sum of 3 lack and she is depositing that amount in FD. So does the interest received is taxable ? Or how it works ?

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