TDS on Savings Account

Banks do not deduct TDS (Tax Deducted at Source) on interest earned from savings accounts. According to Section 80TTA of the Income Tax Act, if you are an Indian resident aged 60 years or less, interest earned up to Rs.10,000 in a financial year is not taxable. Any amount above this is subject to tax.

TDS on Fixed Deposit

TDS on Fixed Deposits (FD) is when the bank deducts a certain amount of tax from the interest you earn on your fixed deposits and deposits it with the Income Tax Department on your behalf.

How is TDS on Fixed Deposit Calculated?

The calculation of TDS on FD interest depends on the following factors:

1)      Applicable TDS Rate:

a.      For resident individuals, the TDS rate on FD interest is generally 10%.

b.      If you haven’t provided your PAN (Permanent Account Number) to the bank, the TDS rate increases to 20%.

c.       For non-resident individuals, different rates may apply based on their tax status and any applicable tax treaties.

2)      Threshold Amount:

a.      TDS is deducted if the total interest income from all your fixed deposits in a bank exceeds Rs 40,000 in a financial year.

b.      For senior citizens (aged 60 years and above), the threshold is Rs 50,000.

Total Income Tax Calculation

TDS is deducted only on the interest income from your fixed deposits, not on your entire income. Your total income may include salary, rental income, business income, and other sources in addition to interest income.

Example as per Old Regime:

Suppose Suresh, who is 30 years old, has a total income of Rs.15 lakhs per year, which puts him in the 30% tax bracket. He has an FD of Rs. 5 lakh with a bank that offers 8% interest per annum. Thus, the interest he earns on the FD for the year is Rs.40,000.

Banks deduct TDS at 10% on FD interest. 10% of Rs. 40,000 = Rs. 4,000

Total tax Suresh needs to pay on the FD interest: 30% of Rs.40,000 = Rs.12,000

Balance tax Suresh needs to pay:

Rs.12,000 (total tax) – Rs.4,000 (TDS deducted) = Rs.8,000

So, Suresh has to pay an additional Rs.8,000 as tax on his FD interest.

Section 80TTB

This section allows senior citizens (aged 60 years and above) to claim a deduction of up to Rs 50,000 per annum on the interest earned from fixed deposits and savings accounts.