TDS (Tax* deducted at source) ensures tax* is deducted at the source of income, thus keeping a check on tax* evasion. Individuals earn an income in the form of salary, bonuses, dividends, interest, etc. So, it is essential to calculate these incomes while calculating the tax* liability of an individual. Section 194A TDS deals with interest on several items that are substantial sources of income for a person.
So, read ahead and learn about TDS on fixed deposits and how it is calculated.
Fixed deposits are an attractive investment tool for many Indians due to their interest rates. But the interest that you earn on fixed deposits is considered a taxable income. This is why banks deduct a certain amount of your fixed deposit interest. Thus, TDS on FD interest is applicable under the Indian Income Tax* Act,1961.
The taxation on FD interest is levied in the following ways:
TDS on FD is not applicable in the following cases:
The FD TDS rate is calculated according to the tax* slab an individual is eligible for. According to the rules of the Income Tax* Act, banks can deduct TDS on FD interest at the rate of 10% in a financial year. However, a 20% TDS rate is levied if you do not furnish authentic PAN details. Let’s consider an example to understand the method of TDS calculation:
Mrs Komal has two FDs of ₹2 Lakh each. She earns interest at 10% for 4 consecutive years.
Now, the interest on both her FDs in a financial year will be ₹40,000 (₹20,000 on each FD)
Interest in 4 years will be ₹1.6 Lakh (₹40,000*4)
Thus, TDS on the interest limit of both the FDs will be levied at 10%
10% of ₹40,000= ₹4,000 (TDS on FD in a financial year)
There are some smart ways to reduce your tax* liability on FD interest. They are as follows:
Now you know about Section 194A of the Income Tax* Act, 1961 and how TDS on FD is calculated. As a responsible citizen, you must pay your taxes on time. But if you fall under a more tax bracket, income tax* can take a big chunk of your income. Therefore, the government has given several options to reduce your tax* liability.
Life insurance is one such saving that can help in tax* savings. By saving in a life insurance plan, you can avail of tax* deductions up to ₹1.5 Lakh per annum under Section 80C of the Income Tax* Act,1961. Also, the maturity or death benefit of life insurance is tax*-exempt under certain conditions.
L&C/Advt/2023/Jan/0005