Fixed deposits are the most popular investment tool. It is a deposit made with financial platforms on a stipulated period for an agreed rate. Because of its market independence, it is a source of guaranteed income. Also, FD interest rates are higher when compared to the regular savings account. However, revenue from fixed deposits is taxable. They are also not exempted from tax deductions at source by banks. Filing forms 15G and 15H can assist depositors during TDS deductions.
The following comprehensive guide has been drafted to provide insights on the following:
- FD: taxability and deductions
- TDS on FD
- Form 15 G, 15 H and benefits
FD: taxability and deductions
As per Section 80TTA, investors can claim deduction upto Rs. 10,000 on their savings account, unlike FDs that are taxable. If the interest accrued on fixed deposits exceeds certain threshold limits, banks follow protocols to deduct tax at source.
However, as per section 80C, investors can claim up to Rs. 1,50,000 deduction from their total taxable income. The IT department will refund excess money to the investors account after the returns are filed. The investment tools eligible under Section 80 C, includes the five-year tax-saving fixed deposit.
Thus, with added benefits of loan against FD and premature withdrawal facility, these tax-saving FDs are a viable option for investment.
TDS on FD
Taxes are deducted during the accumulation of FD interest rate and not during maturity. The TDS has to be deducted as per rates prescribed by the IT department.
The income tax department also entails the importance of linking PAN with the bank. If the details of PAN are not provided to the bank, the deduction percentages will vary.
E.g., TDS at 10% is deducted if the income from all fixed deposits (FDs) of the investor in the bank exceeds Rs. 10,000 or Rs. 50,000 (senior citizens). Without PAN, the deductions are 20%.
Forms 15G,15 H and benefits
The forms 15G and 15H are self-declaration forms filed by investors to banks requesting not to deduct TDS on their interest income. Besides specific norms, investors should hold a PAN card for the form submission.
- Regular deposit holders below 60 years submit 15G
- Senior citizens submit form 15 H
Investors are eligible for TDS exemption on FDs when total income in the financial year after the Chapter VI-A deductions is less than:
- Rs. 2,50,000 for investors below 60 years
- Rs. 3,00,000 for investors between 60 to 80 years
- Rs. 5,00,000 for investors above 80 years
Investors can notify the banks by filing form 15G and 15H accordingly. However, these forms can be submitted only if:
- The tax liability on income is zero
- The total aggregate on the income for which the form is presented doesn’t exceed the fundamental exemption limits.
Final thoughts
Tax is deducted by banks on FD when the income exceeds the threshold values and when no 15G and 15H are filed. Investors should adopt diligent planning, monitor income and record income accurately with the IT department to have sound investments and tax payments.
