TDS on Fixed Deposit — Complete Guide

What is TDS on Fixed Deposit?

Tax Deducted at Source (TDS) on Fixed Deposits is a mechanism where the bank deducts income tax on the interest earned from your FD before crediting it to your account. TDS is deducted under Section 194A of the Income Tax Act, 1961. It is essentially an advance tax collection method — the bank deducts tax and deposits it with the government on your behalf.

TDS is not an additional tax — it is simply a prepayment of your income tax liability. If the TDS deducted exceeds your actual tax liability for the year, you can claim a refund when filing your Income Tax Return (ITR).

TDS Threshold Limits — When is TDS Deducted?

TDS is deducted only when the total interest earned from all FDs at the same bank exceeds a specified limit in a financial year. The limits are:

Important: The threshold applies to the total interest across ALL your FDs at the same bank, not per FD. If you have 5 FDs at SBI earning Rs 10,000 each, your total interest is Rs 50,000 — which exceeds the Rs 40,000 limit, and TDS will be deducted.

Form 15G and Form 15H — How to Avoid TDS

If your total annual income is below the basic exemption limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens aged 60+) to your bank to prevent TDS deduction on your FD interest.

Form 15G — For General Citizens

• Eligibility: Individual or HUF with total income below the basic exemption limit (Rs 2,50,000 under old regime, or up to Rs 7,00,000 under new regime with rebate).
• Submit at: Your bank branch or online through net banking at the start of each financial year (April).
• Validity: One financial year only. Must be resubmitted every year.
• Multi-bank: Must be submitted separately at each bank where you hold FDs.
• Effect: Bank will not deduct any TDS on your FD interest for that financial year.

Form 15H — For Senior Citizens

• Eligibility: Individuals aged 60 years or above whose total tax liability for the year is nil.
• Key advantage: Senior citizens can submit Form 15H even if their total income exceeds the basic exemption limit, as long as the tax on total income is zero (after deductions and rebates).
• Section 80TTB: Senior citizens can claim Rs 50,000 deduction on interest income under 80TTB (old regime), which effectively raises the non-taxable threshold for FD interest.
• Submit each year: Form 15H must be submitted fresh at the beginning of each financial year.

TDS on Cumulative FD — When is TDS Deducted?

A common misconception is that TDS on cumulative FDs is deducted only at maturity. In reality, TDS is deducted annually on accrued interest, even if the interest is not physically paid out.

• Banks calculate interest accrued for each financial year and deduct TDS if it exceeds the threshold.
• For a 5-year FD, TDS is deducted in each of the 5 financial years on the interest accrued that year — not in one lump sum at maturity.
• The interest is credited to an internal 'Interest Payable' account for cumulative FDs, and TDS is computed on this accrued amount.
• You must report the accrued interest in your ITR each year, not just in the maturity year.

How to Claim TDS Refund on FD

If excess TDS has been deducted (e.g., your total income falls below the taxable limit after deductions), you can claim a refund by following these steps:

1. Download Form 26AS or AIS (Annual Information Statement) from the Income Tax portal to verify the TDS deducted by your bank.
2. File your Income Tax Return (ITR) for the financial year, declaring all income including FD interest.
3. The ITR will automatically calculate your tax liability and compare it with TDS already deducted.
4. If TDS exceeds your tax liability, the excess amount will be shown as a refund.
5. The refund is credited directly to your bank account linked with your PAN, typically within 30-60 days of ITR processing.

Tips to Reduce TDS on Fixed Deposits

• Split FDs across banks: Distribute your FDs across multiple banks so that interest at each bank stays below Rs 40,000. TDS threshold is calculated per bank, not combined.
• Submit Form 15G/15H early: Submit the form at the beginning of each financial year (April) to prevent TDS from the start. Late submission may still result in TDS for the months before submission.
• Choose shorter tenures: Shorter FDs mature and renew within the year, making it easier to manage interest below the TDS threshold at each bank.
• Open joint FDs: In a joint FD with the 'either or survivor' option, interest is taxed in the name of the first holder. Choose the holder with lower income as the first holder.
• Consider tax-free bonds: If you are in a higher tax bracket, consider tax-free bonds as an alternative where interest is completely exempt from tax.