Fixed Deposit i.e. FD is always considered the first choice of common investors for safe investment and fixed profits across the country. Be it government banks, private banks or post offices, crores of Indians deposit their hard-earned money in FDs. But it is often seen that when interest is added to the account, the amount is less than expected and people start wondering where the money was deducted. This deduction is TDS i.e. Tax Deducted at Source deducted by the bank. According to the rules of the Income Tax Department, the returns received on FD are not completely tax-free, rather tax is deducted directly at source as soon as it crosses a certain limit. If you also invest in FD or are planning to open a new deposit, then it is very important for you to know when this TDS is deducted, under the law not even a single rupee is deducted on the interest income and if TDS is deducted then how can it be refunded. Latest rules and legal provisions for deducting TDS on FD interest: Under Section 194A of the Income Tax Act 1961, banks, cooperative banks and post offices have been given the legal right to deduct TDS on interest payments of depositors. Many investors have a misconception that the principal amount of FD is taxable, whereas the reality is that tax is applicable only on the interest earned on that deposit. Banks calculate the total interest earned on all FD and RD accounts of a customer during a financial year. As soon as this combined interest crosses the annual threshold limit set by the government, banks deduct TDS on it. It is important to understand here that deducting TDS does not at all mean that your final tax liability is fulfilled, rather it is a tax collected by the government in advance which is later adjusted with your total annual income. Not a single rupee is deducted till the amount of income: Know the limits for general and senior citizens. In the Income Tax rules, different limits for interest exemption have been fixed depending on the age of the depositors. If you are below 60 years of age, i.e. you fall in the category of general citizen, then no TDS is deducted on FD interest up to ₹50,000 from a single bank in a financial year. As long as your total interest earned remains within this limit, the bank credits the entire interest paid to your account without any deduction. The government has provided special relief for senior citizens i.e. persons aged 60 years and above. In case of senior citizens, the TDS exemption limit has been kept at ₹1,00,000 per financial year. This simply means that if an elderly investor receives interest up to Rs 1 lakh from FD within a financial year, the bank cannot deduct a single rupee as TDS from their account. This rule is a little stricter in case of non-banking financial companies i.e. NBFC or corporate FDs, where TDS is applicable only if the interest earned is more than ₹5,000 to ₹10,000. Big game of PAN card: Will 10% be deducted or will there be a huge blow of 20%? The deduction rate of TDS depends on whether you have submitted your PAN card i.e. Permanent Account Number in the bank or not. If your PAN is duly updated in the bank records and linked to Aadhaar, the bank deducts TDS at the normal rate of 10% if the threshold limit is crossed. For example, if an ordinary citizen received interest of ₹ 60,000 in a year, then once the limit of ₹ 50,000 is crossed, 10% i.e. ₹ 6,000 TDS will be deducted on the entire ₹ 60,000. But if the investor has not submitted his PAN details at the bank branch or the PAN given is invalid, then the bank has to mandatorily deduct TDS at double rate of 20% under Section 206AA of Income Tax. Therefore, it is a wise first step to present your valid PAN card at the time of opening an FD account so as to avoid unnecessary additional deductions. How banks collect total interest: Understand the mathematics of core banking system. In earlier times, many people used to avoid TDS by opening FDs in different branches, but after the implementation of modern core banking system i.e. CBS, this is no longer possible. Banks now track the total interest based on the unique customer ID and PAN number of the customer, not on the branch basis. If you have accounts in three different branches of the same bank and the total interest received from all three together exceeds ₹50,000, the bank's central system will automatically deduct TDS. However, if you have FD in different banks, each bank will only check its limit. This means that banks will not deduct TDS if the interest remains below the limit in different banks, but you will have to mandatorily declare that entire interest in your total income while filing ITR. Form 15G and 15H: Legal way to get interest without tax deduction If your total annual income is below the income tax exemption limit and your final tax liability becomes zero, you can prevent the bank from deducting advance TDS. For this, the Income Tax Department has provided the facility of self-declaration form. Indian citizens below 60 years of age can submit Form 15G to the bank at the beginning of the financial year. Two conditions are necessary for this: first, that your total estimated taxable income should be less than the basic exemption limit and second, that the total interest received from FD should also not exceed the basic exemption limit. Whereas Form 15H is made available for senior citizens aged 60 years or more. The rule is more flexible for senior citizens; If their final total tax liability is zero, they can get the TDS deduction completely zero by submitting Form 15H even if the interest amount is high. It is best to submit this form in the first month of the financial year i.e. April through online net banking or by visiting the branch. What to do if TDS is deducted: Direct and easy way to get refund. Many times TDS is deducted from the bank account due to lack of information or not submitting the declaration form on time. If this has happened to you too then there is absolutely no need to panic. The TDS deducted by the bank is deposited with the Income Tax Department and is recorded in your Form 26AS and Annual Information Statement i.e. AIS. When you file your annual income tax return i.e. ITR, enter the details of your total income and TDS deducted there. If your actual income tax liability turns out to be nil or less than the TDS deducted, the Income Tax Department sends the entire excess deducted amount directly to your bank account as a refund along with interest.
