How Much TDS is Deducted on Fixed Deposit Investment?


How Much TDS is Deducted

What is TDS?

TDS (Tax Deducted at Source) is a fundamental part of the direct taxation process that applies to several sources of income some of which include salary, fixed deposits, LIC maturity amount, contractor payments, and several others. A key benefit of the TDS is that it is deducted at the source thereby proving to be beneficial for the lawmakers and the taxpayers. For the government and the lawmakers, TDS helps in checking and avoiding tax evasion. When it comes to taxpayers, it relieves individuals from the burden of having to calculate taxes and pay them as a lump sum at the end of the year.

How Much TDS is Deducted on FDs?

It is a common fact that FDs are taxable. Typically, the TDS charged on FDs is 10% in case the interest that is gained on the capital is more than Rs. 10,000 in AY 2019-20. However, in AY 2020-21, TDS on FD interest is 10% only if the interest gained is beyond Rs. 40,000. However, for NRO accounts, the TDS charged is 30%. On the other hand, for NRE and FCNR accounts, no TDS is charged on FDs. Moreover, for FDs made with post offices, no TDS will be charged.

To gain deep insight into the TDS that is deducted on fixed deposits, Form 26AS can be a great resource. Nonetheless, the TDS charges will be 20% in cases where individuals do not provide the bank with their PAN Card.

How to Reduce TDS on FD?

Here are 3 ways in which you can reduce TDS on fixed deposits.

  • You can begin by submitting your 15H/15G form in case your income is less than Rs. 2.5 Lakhs per annum. Doing so will make sure that the bank doesn’t deduce TDS as you would not be under the taxable criteria.
  • Another way to reduce TDS on FD is to open multiple FD accounts across different banks and different branches. When a certain capital is divided between different branches, the cumulative interest is reduced in comparison to the same capital invested in a single FD account.
  • An alternative to opening an FD account in a bank is to open a fixed deposit account in a post office. TDS on FD interest will not be charged on a post-office-based FD.
  • In addition to investing in a fixed deposit in your name and account, you can invest more capital in the names of your family members such as your spouse, kids, etc. So, now that the investment has been spread out across individuals, the TD charged per individual will be reduced.
  • Investing during the right time of the year can also prove to reduce TDS on fixed deposit. To make sure that the TDS is reduced and spread into 2 years, make sure to push the FD amount close to the end of the year.

To Summarize

It’s a common fact that fixed deposits are taxed. Different types of accounts have a different rate of TDS on FDs. However, there are certain ways in which you can minimize or reduce TDS on fixed deposits.

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