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How to save TDS on Bank Fixed Deposits?

How to avoid TDS on Bank fixed deposits

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Nobody likes paying taxes. More so, if it is on the interest on your very safe bank fixed deposits. So, what do you do if your bank deducts TDS on the interest income on your bank FD and you taxable income falls below minimum tax exemption limit?

Your taxable income is within minimum tax exemption limit (Rs 2.5 lacs). If your bank had not deducted TDS, you wouldn’t have had to claim this excess tax (TDS) as refund while filing income tax return. Is there a way to avoid this TDS if your total tax liability during the year is Nil? Yes, there is. You can provide declaration under Form 15G/15H to avoid TDS.

TDS on Bank Fixed Deposits

A bank is required to deduct TDS (Tax deducted at source) if the interest paid during the financial year exceeds Rs 10,000 across all its branches. TDS is the tax deducted upfront by the bank (from the interest) and deposited with the Government.

If you have furnished PAN with the bank, TDS will be deducted at 10%. Otherwise, the bank will deduct TDS at 20%. Please understand this has no relation to your marginal income tax rate (income tax slab).

Is there a way to avoid TDS?

To avoid tax deduction at source (TDS), you can furnish Form 15G/15H with the bank. Form 15G can be submitted by depositors below 60 years of age and Form 15H by depositors above 60 years.

Under Form 15G/15H, investor gives the declaration to the bank that his/her taxable income (including the interest income) won’t exceed the tax exemption limit (Rs 2.5 lacs or Rs 3 lacs or Rs 5 lacs depending upon age).

On receipt of such declaration under Form 15G/15H, the bank won’t deduct any TDS.

With this, you can avoid hassle of claiming tax refund if your total taxable income (after including interest income) is less than the tax exemption limit.

You can also check sample Form 15G or Form 15H from Income Tax website. These forms are also available at bank branches.

Who can file Form 15G/Form 15H?

Not everybody can file Form 15G/15H. There are a few conditions to be met.

If you are less than 60 years

You can file Form 15G if your estimated income tax for the financial year is Nil and your total interest income is less than minimum tax exemption limit (>=Rs 2.5 lacs). Please note both the conditions have to be satisfied.

If you are a Senior Citizen (>=60 years)

You can file Form 15H.

There is relaxation of second condition in case of filing Form 15H. You can file for Form 15H if your estimated income tax for the financial year is Nil. So, if you are above 60, you can furnish Form 15H if your total taxable income is less than Rs 3 lacs (Rs 5 lacs for people above 80).

Please note the interest income includes all interest income that is chargeable to tax in that financial year. Hence, fixed deposits across the entire banking system must be considered before filing Form 15G/15H.

Examples

Conditions for filing Form 15G 15H

For taxpayers less than 60 years of age, both interest income and taxable income has to be less than Rs 2.5 lacs. For senior citizens, only the taxable income has to be less than Rs 3 lacs (Rs 5 lacs for very senior citizens). There is no restriction on interest income for senior and very senior citizens.

Declaration under Form 15G/15H won’t be treated as valid if you have not furnished correct PAN in the declaration (15G/15H) to the bank.

What if I file Form 15G/15F when I am not eligible?

 A false or wrong declaration may attract penalty or imprisonment under Section 277 of the Income Tax Act. You are advised to check eligibility for submission of Form 15G/Form 15H before submitting Form 15G/15H to the bank.

Can NRIs also avail TDS exemption by filing Form 15G and 15H?

As per Section 197A of the Income Tax Act, only residents are allowed to avail TDS exemption by filing 15G and 15H. Hence, non-residents (NRIs) can not avail TDS exemptions by filing Form 15G and 15H.

Does payment of TDS complete my tax liability?

No.  Payment of TDS does not complete your tax liability. If you fall in the higher tax-brackets, you will to have to pay excess tax at the time of filing income tax returns (or as advance tax). For instance, even if you fall in the 30% tax slab; the bank would have deducted TDS only at the rate of 10%. You need to pay the remaining tax.

You will get tax credit for TDS already deducted.

Point to Note: Entire Fixed Deposit interest is taxable

Entire interest income is taxable unless specifically exempted by the Government. For instance, interest of tax-free bonds is exempt from tax. Interest on savings account up to Rs 10,000 is exempt from tax under Section 80TTA.

Must read: 15 lesser known Income Tax Deductions

There is no such exemption on interest income on bank fixed deposits. The entire interest income is added to your income and taxed at your marginal tax rate (income tax slab) Hence, the entire interest income on fixed deposits is taxable.

You may have fixed deposit accounts in two banks. With one, you earn Rs 9,000 as interest. With the other, you will earn Rs 8,000 as interest. Since the amount is less than Rs 10,000 with either of the banks, the banks wouldn’t deduct any TDS. However, you need to add Rs 17,000 to your taxable income and pay tax accordingly.

Points to Note:

  1. You have to submit Form 15G/15H every financial year
  2. You must submit Form 15G/Form 15H with every bank you have fixed deposits with (and want to avoid TDS). There is no exchange of such information between banks.
  3. Submit the forms at the beginning of financial year. This will ensure that banks don’t deduct TDS on the interest income.
  4. You can also submit Form 15G/15H with Post offices (for Senior Citizen Savings Scheme) or NBFCs (fixed deposits) where your interest income can be subject to TDS.
  5. Consider interest income from all the instruments (where Form 15G/15H can be furnished to avoid TDS) to calculate total interest income for the purpose of filing Form 15G/15H. If the total interest income (or total taxable income as the case may be) exceeds minimum tax exemption limit, you cannot file form 15G/15H.

Image Credit: Tax Credits, 2012. The original image and information about usage rights can be downloaded from Flickr/TaxCredits.net

78 thoughts on “How to save TDS on Bank Fixed Deposits?”

  1. • Let say Mr.X is depositing Rs.2Lakh in FD @ 8% for 1 year. The interest earned is Rs.16000. If TDS is 10%, Mr.X will get only Rs.214400 at the end of 1 year?

    • Let say, Mr.X is a senior citizen, 65yrs old and has no source of income. He invested Rs.35Lakh in FD @ 8% for 1 year with form 15H. At the end of 1 year the interest earned is 2.8Lakh which is below the tax exemption of 3 lakh. Will this be taxable?

    • Let say, Mr.X is a senior citizen, 65yrs old and has no source of income. He invested Rs.40Lakh in FD @ 8% for 1 year with form 15H. At the end of 1 year the interest earned is 3.2Lakh which is above the tax exemption of 3 lakh. Will this be taxable?

    • Mr.X is a senior citizen, 65yrs old and earns Rs.1Lakh annually through some mode, which is below tax exemption and he invest Rs.30Lakh in FD @ 8% for 1 year with form 15H. At the end of 1 year the interest earned is 2.4Lakh. So total income for Mr.X in a year is 3.4Lakh which is above the tax exemption of 3 Lakh. Will he be taxed?

    1. Also please explain, Interest income, other income, deductions and taxable income which you have mentioned in tables.
      Thanks

    2. Deepesh Raghaw

      1. Not exactly. Timing of deposit can affect TDS calculation. TDS will charged if interest exceeds 10,000 in a financial year.
      2.No
      3. He can file 15H only if taxable income is within Rs 3 lacs. If he makes investment of Rs 20,000 under Section 80C or incurs any other expense which brings down his taxable income below Rs 3 lacs, there won’t be any tax.
      4. Same as above. He can save TDS by filing 15H. However, he can file Form 15H if his taxable income is below Rs 3 lacs. So, he needs to reduce income by Rs 40,000. If he does not do anything, he cannot file Form 15H. Bank will deduct TDS. Any excess tax deducted will have to be claim through income tax return.

          1. Depends on your FD terms. Typically, the interest compounds quarterly. Please do check with your bank.

  2. For long term fixed deposits, how one should calculate Taxable income ?.

    Being, TDS is done based on interest accumulated on a given financial year, so does it mean….even on realization of interest on maturity, the interest obtained for the final financial year to be considered while computing income tax ? Please clarify

    For e.g
    10 lacs invested for 3 years FD @9.0%
    1yr 1000000 93083 1093083
    2yr 1093083 101748 1194831
    3yr 1194831 111219 1306050

    Total Interest Income earned on maturity is: 306050
    So One no need to pay tax, even at the time of maturity being income within 2.5 lacs limit?

    1. Does banks have responsibility to inform customer if customer hasn’t given any information about PAN CARD?

      1. Dear Gulshan,
        It is the customer’s responsibility to provide such information about the bank.
        The bank may also choose to notify customers that PAN information is not updated in their database.

  3. In case of FD of tenure 3 years ( pay on maturity and so cummulative ), the interest is realized at end of 3rd year only.

    In order to compute income tax, do we need to consider the total realized interest amount or only interest earned of a given financial year only ?
    In above my example whether Tax to be computed for Total Interest realized – Rs.306050 or Interest earned Rs.111219 of 3rd financial year only

  4. Have you got my question ?

    Also, I understood that I need to pay tax for interest income of the given financial year ….not on full maturity value.
    This is puzzling because most of the investments say NPS its taxed on maturity value but in case of FD ( > 1 yr tenure ), to pay tax on unrealized interest of a given financial year and not on maturity value!

    1. Deepesh Raghaw

      Hi Sunil,
      That’s the law.
      For all interest bearing instruments, that is the case. You have to pay tax every year. Examples include corporate FDs, SCSS, POMIS etc. You would have had to pay tax even on PPF and EPF if the interest on EPF and PPF was not tax-free.
      The difference is that you don’t even get interest in case of a cumulative FD (interest is merely credited to your FD account and you can’t even use it). Btw, NPS is not an interest bearing product. It provides market linked returns.
      Btw,there is an option under Section 145 of the Income Tax Act where you can choose to pay tax on receipt (or cash) basis.
      So, you pay interest on receipt basis or accrual basis, depending on your choice.
      The problem is with how to claim tax credit for TDS deducted in the previous financial years. i.e. if you are not showing interest income on accrual basis, you should also not avail TDS credit in that financial year.
      I will suggest that you show interest every year (even when you don’t receive it) and pay tax on it.
      However, in case you want to show only on receipt, take professional assistance from a chartered accountant. He will help you out.

  5. Referring your table, if one is not eligible for 15G, will TDS-10% be applied on the income over and above 2.5 lac or over the entire interest income ?

    ( Once, a bank manager told me they will do TDS on entire interest income, which is supposed to be wrong !? )

    1. Deepesh Raghaw

      Bank does not know how much you are earning if you have not submitted Form 15G.
      Hence, they will deduct TDS on entire interest amount.
      It is not wrong. It is an operational issue. How will the bank find out if you are earning RS 2.6 lacs or 26 lacs.
      They take the safer route.

  6. Does Interest from NCDs and Corporate FDs follow the same principal as Bank FDs i.e tax for interest income of the given financial year, not on full maturity value.

    If it is true, I would say these are the best savings instruments in debt category of investments though the 10% deduction ( can claim IT refund too ), esp in case of investing in the name of non earning members of family/relatives.

    1. Deepesh Raghaw

      Yes, every kind of interest income is treated this way only.
      You can’t do that. If you invest in the name of non-earning members, clubbing provisions under Section 64 will apply.
      Essentially, their income will be clubbed with yours and you will have to pay tax.
      This has been done to prevent tax evasion.

  7. But NCD is market related right ? and even NPS does investments in corporate FDs and NCDs but NPS is taxed on maturity. Im sorry that, the taxation is bit confusing for me.

    Reg clubbing of investment:
    As you might know, there is an option of getting loan from your spouse, in pledge of jewels and invest independently or you can gift to a set of relatives where in its not taxed etc.

    1. Deepesh Raghaw

      MF and NPS are trusts. Taxation is much different. Yes, tax laws are confusing.
      That’s why we pay CAs.
      About clubbing, there are many ifs and buts. Wouldn’t be possible to cover everything in a single post.
      However, transferring money to your spouse or minor children and investing that money will attract clubbing provisions.
      Otherwise, it becomes a very easy way to evading taxes.
      Gifts are different.

  8. FDs rates are going down from this week onwards.. So whats your suggestion on tenure i.e to choose good interest rate for long term e.g 8.75 for 5 years RBL bank or 9.0 for 2 yrs and renew with new interest rates after 2 yrs
    ( Requirement: Debt investment for long term. )

    But I would think that rates will increase after 1.5 yrs or so and I will choose tenure accordingly so that I can opt for better interest rates that time ( i.e after 1.5 yrs )

    1. Deepesh Raghaw

      I don’t have expertise to predict interest rate movements. However, it does appear that interest rates are more likely to go down than go up in the short term. So, you can try lock-in the interest rates.
      If your horzion is greater than 3 years, do consider debt mutual funds. You might get better post-tax returns.

  9. The debt fund plan:
    – To invest corpus in FD such that to ensure 2.5lacs interest income per fin yr
    – Remaining corpus on debt funds. Also interest earned will be redirected to debt funds too
    Because, the FD ensures the confirm percentage and debt fund does not. ( Debt funds too do the investing in corporate FDs/Loans etc )

    1. Deepesh Raghaw

      Debt funds come in multiple variants. You can pick up gilt funds where risk of default is almost nil.
      There are more chances of default on a FD than default by Indian Government.

  10. I have just come to know gilt variant. Thanks for Useful info. Also gilt funds can be used to hedge recently g-sec linked ppf ssy. Will discuss more on your ppf article

    1. Deepesh Raghaw

      You are welcome Sunil.
      You can perhaps do that by investing in long duration funds.
      Do note long duration funds can be tricky. You need to get interest cycle right.
      Otherwise gains during downcycle will be wiped off during gains in upcycle.

  11. If one submit 15H being senior citizen with bank.Why should he file return if suppose his accrued interest on Rucurring and fixed deposit is less than taxable iimit before deductions.

    1. Deepesh Raghaw

      Dear Mr. Joseph,
      That’s the way it is. With taxes, not everything is logical.
      I am not a tax expert but there is exemption from filing income tax return in specific cases.
      As I understand, senior citizens are not required to file returns if income is less than Rs 3 lacs. But I am not very sure.
      Please talk to a Chartered Account for more on this.

  12. T R CHANDRASEKARAN

    The revised Form 15H asks for the overall estimated taxable income to be declared
    If some one makes investment out of funds available at different points of time
    the estimated taxable income would stand to vary. So at different point of time
    this figure would vary. In subsequent declaration the revised figure would be given. Since PAN No is quoted will it be taken as wrong declaration where Form
    15H is given in the year beginning.What happens if it turns out to be more than taxable income subsequently though Form 15 H would not be submitted for subsequent investments!!!

    I read somewhere that under SCSS the reduced interest would be applied even for investments made prior to 31.03.2016. One has to wait and see what is done by the banks/post offices etc.

    1. Deepesh Raghaw

      That’s why you need to be extra cautious while submitting Form 15H. If you are unsure, don’t submit it.
      Claim back excess TDS by filing income tax return.
      Though there are penal provisions for wrong declaration, I am not sure how strictly those are followed.
      SCSS interest rate is fixed for the term of the deposit.

  13. Hello Sir,

    Please help me to clarify on:

    I had one Fixed deposit in bank for F.Y. 2015-16, and PAN number was not allotted to me so not given in bank.

    Bank has deducted TDS for first 2 quarters from FD interest amount and in Oct-15 I had submitted my PAN details with form 15-G to bank, then after bank has not deducted any TDS ( in last 2 quarters)

    Please suggest shall I get deducted TDS back?

    PS: My Total income for 15-16 is under taxable threshold limit.

    1. Deepesh Raghaw

      Yes. If the excess TDS has been deducted, you can claim it back at the time of filing income tax return.

  14. SIR,SENIOR CITIZEN HIS/HER DO FD IN POST OFFFICE AMT RS.70000/- FOR 5 YEAR 7.40@RATE P.YEAR & NO ANOTHER INCOME OK SO IS IT MENDATORY FOR FILED 15H OR NOT?

    1. Deepesh Raghaw

      Dear Sir,
      Since the total interest liability does not exceed Rs 10,000 for the year, bank will not deduct any TDS.
      Hence, there is no need to file Form 15H.

  15. If i invest fd in the name of my wife or parents as first holder and my name will be second holder, will the interest on such fd shall be included while filing return.pls clarify

    1. Deepesh Raghaw

      Taxation of joint FDs are tricky. Different points of view.
      In my opinion, if you are the source of money and retain beneficial interest, then you must disclose the interest as your income.

  16. Dear Deepakji,
    I am grateful & happy to see that u have taken the efforts & pain, to reply to each & every query.
    You have mentioned that scss deposit interest rate is lockedin for 5 years and also for next 3 years extension.But the bank manager refuses to confirm the same.Is there anything in writing on any official website to confirm the same.
    Also,The interest rate for PPF is lockedin or we get revised interest rate for our old deposits.

    Regards

    Gaurav Ajmera

    1. Dear Mr. Ajmera,
      SCSS is like a fixed deposit. Therefore, your money earns the same rate of interest for the entire five years (as at the time of opening the deposit).
      If you extend the account for another 3 years, it earns the rate of interest at the time of extension for the next three years.
      In any case, google “SCSS rules 2004”. You will get requisite text.

  17. hi,
    my father just got retired on 31st January and he has fixed 15 lacs under SCSS at 8.5% rate . His age is 58 years. I would like to know about tax on interest income. Amount of 15lacs is already taxed amount. As the income will only be of interest on 15 lacs should he fill up 15G form not to deduct TDS of 10% ?
    Is he eligible for 15G form?
    If the form is filled do he have to show the income of interest in the income tax return form to be filled for fy 2016-17?
    thanks.

    1. Yes, he can submit form 15G/H as applicable with the bank/post office.
      Interest income has to b shown in the income tax return.

      1. Which will be good choice according to you?
        If the annual income was just above 10 lacs, filling 15G form will add the interest income to this 10 lacs income and hence tax on that. Or not filling 15G form and let bank TDS of 10% on intetest income, which is good option?

        Correct me if I am wrong about my understandings as I am not good with taxes.

        Thanks.

        1. Dear Rajesh,
          You can’t file Form 15G if the annual income is in excess of Rs 10 lacs. It is not a question of choice.

          1. Thanks for clearing me out.
            One last query, for FY 2017-18, can he submit 15G form as tge income will only be interest income?

          2. What is the interest income for this financial year?
            Btw, most of the TDS would already have been deducted as you are towards the end of the financial year.

          3. applied for the SCSS scheme from this (feb) month only.
            so income interest will only be of feb and march, 2017.

  18. I opened a FD of 10000 in sbi for 7 months. the interest i wil receive at end is 375.
    do bank will cut some charge on my interest. if yes then how can i avoid it. i dont have any source of income at present.

    1. Deepesh Raghaw

      If the FD interest exceeds Rs 10,000, banks will deduct TDS.
      If this is the only FD you have, there will not be any TDS.

    1. let say i have 4 F.Ds of a bank, total interest earned from 4 fds is 12000 but individual 3000 interest per f.d…then?

  19. My father has an FD for 10 years.. I have been submitting 15H all along and no TDS so far.
    Now this will get matured in next 6 months. Question is, will the total interest at the time
    of maturity be considered as taxable? That doesn’t sound logical, as the interest is
    accumulated over 10 years. Could you please clarify?

    1. Deepesh Raghaw

      Hi Rajib,
      I am not sure if I got your question right.
      Principal amount is not taxed. Only the interest earned is taxed.
      Interest is taxed on accrual basis. So, every year, even if you do not receive interest (in case of a cumulative FD), you have to pay on the interest income.

  20. I have around 9 lakhs as FD with 6.2% interest and submitted 15g..unemployed….what can I do to save my tax.please tell me clearly

  21. Hello ,
    My mother she is a family pensioner , plus fd’s worth 20lakhs with 5l,5l and 10l in three different prospects such as two different bank and in post office with 6.9% uniformly what should be done to save tax on fd?

      1. Hello ,
        She is not eligible for tax currently but maybe in next cycle she will be on family pension.
        If some guidance would be provided to invest some 10lakhs in current scenario plus her monthly family pension where she saves in tax plus gets good returns in near future.
        Any help in with solution would be appreciated.

        1. How much tax will she have to pay?
          Tax-saving can’t be the ultimate goal.
          Debt funds can be a good choice. However, debt funds can get quite risky.
          In my opinion, it is better to contact a local advisor.
          He/she will be able to guide you better after understanding the situation.

          1. Is she liable to pay TDS on savings interest? More then 10,000rs of that financial year? Or she is exempted from TDS by bank? Plus does she needs to file 15G? If she is having no FD but savings rate interest will give he more then 10k?

          2. There is no TDS on savings bank account interest.
            She can file for Form 15G/15H if she is eligible.

  22. I have a FD double 4lakh for 72 month and maturity month is jan-2018,whether I have to pay TDs ,what will be the deduction .whether I have any option for getting full amount. I am NRI person

  23. I have FD double scheme _ 72 month ,4L in private finance sector ,in jan 2018 the maturity amount is 8L .what will be TDs dedection and and any option for get full amount

  24. Hello Deepesh,
    Hope you are doing well.

    I have query, does a family pensioner,received gratuity on behalf of her husband worked In a govt organisation,and now her family pension coming under 5% tax bracket , is she liable to file for ITR . As she has mutual fund investments and medical and term insurance?
    Please suggest ,

    1. Hi,
      I am doing very well. Hope you are doing well too.
      I have limited knowledge about taxation.
      Since you are under 5% tax bracket, it is better to file return.
      A competent CA is the best person to answer this question.

  25. Dear Sir,
    I have joint account with my wife and she is house wife and she is first holder, now I am making FD of Rs. 15 lacs
    so, please tell me sir the TDS will be applicable or not after filled up the form 15G.?

  26. Dear Sir,
    Good Morning…

    Supposed Mr.X. Has invested 5Lakh FDR in three different bank and he has also submitted 15G in each 3 bank.
    Mr. X is working professional in IT company with annual income about 8lakh per annum.

    Now at the time of filling ITR of only one bank in income from other sources in TDS TRACES-26AS. Is shown in website.

    SO what should he do file ITR with one bank income or he has to show all 3 bank income at the time of ITR filling.

    Kindly reply and guide us sir.
    Regards.

    1. Such a person will likely have taxable income. Hence, he/she must not submit Form 15G.
      Interest Income from all the banks have to be shown.

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