Fixed deposits (FDs) are a popular investment choice for many seeking a stable and secure way to grow their savings. However, as you embark on your investment journey, it’s essential to be aware of the Tax Deducted at Source (TDS) implications on FD interest.
Often considered a low-risk investment avenue, FDs provide a fixed interest rate over a predetermined tenor. While the interest earned on fixed deposits is taxable, the government mandates TDS to be deducted to ensure tax compliance. The rate of TDS depends on whether the depositor has submitted their PAN details to the bank.
TDS Calculation on FD Interest
As of 2024, TDS on FD interest is calculated based on the interest earned during the financial year. The TDS rate for FDs without PAN is higher than for those with a PAN. The current TDS rates are as follows:
- With PAN: 10% TDS
- Without PAN: 20% TDS
Let’s break down the calculation with an example:
Suppose you have invested in a fixed deposit with an annual interest of ₹5,000. If you have provided your PAN, the TDS deduction would be ₹500 (10% of ₹5,000). On the other hand, if you haven’t provided your PAN, the TDS deduction would be ₹1,000 (20% of ₹5,000).
How to Reduce TDS on FD Interest
Here are some strategies you could adopt to minimise the impact of TDS deductions on your interest earnings:
- Submit PAN Details
Ensure that you provide your PAN details to the bank. This simple step can significantly reduce the TDS rate, preserving more of your interest income.
- Opt for Tax-saver FDs
Consider investing in tax-saver FDs, they come with a lock-in period of five years. While TDS is applicable, it is only deducted on maturity, allowing your investment to grow without annual deductions.
- Interest Payout Frequency
The frequency of interest payouts affects TDS. Opting for cumulative FDs, where interest is reinvested, can result in lower annual TDS compared to regular interest payouts.
- Split Your Investments
Instead of investing a lump sum in a single FD, consider spreading your investments across multiple FDs or different issuers. This may help reduce the impact of TDS deductions.
How to Open a Tax-saver FD Online
Opening a tax saver FD online is a simple and convenient process. Follow these steps:
- Navigate to the official website of the bank where you wish to open a tax-saver FD
- Existing customers can log in with their credentials, while new customers can register by providing the necessary details
- Look for the tax-saver FD option and click on it
- Provide the required information, including your PAN details and personal information
- Specify the amount you want to invest in the tax-saver FD
- Review the details, confirm the accuracy of the information, and submit your application
- Once your application is processed, you will receive confirmation of your tax-saver
Conclusion
By being proactive and adopting suitable investment approaches, you can make the most of your fixed deposit investments while ensuring compliance with tax regulations. Remember to leverage options like tax-saver FDs and provide your PAN details to lower the brunt of TDS deductions on your FD interest income.
