Did You Know: You Can Get TDS From FD Interest Deducted From S/B A/c

On fixed deposit investments there is a provision of TDS deduction in case the interest accrued exceeds some value in a financial year. And now this TDS deduction amounts to be heavy for the investor in 2 ways:

1. Loss of interest amount deducted as TDS
2. Additionally there is also loss of the compound interest that would have been earned for the remaining FD tenure, on the amount i.e. deducted as tax.

Now new as may sound to many there is a way to avoid the second type of loss and that is by getting the tax deducted from your linked savings or current account balance with the bank instead of from the interest accrued on the fixed deposit instrument.

When Is TDS deducted on FD?

For citizens of India, in case the FD interest in a particular fiscal year is Rs. 40000 and Rs. 50,000 in case of senior citizen then 10% TDS is to be deducted from the amount accrued as interest income on FD. And if the investor has not furnished the PAN the TDS rate still goes higher to 20%. For non-resident ordinary account holder, the TDS rate is still higher at 30 percent.

While, only a small number of investors go on to calculate the loss due to TDS income, it is more pronounced in case of long term FDs. Say for instance when you have booked a Rs. 10 lakh FD for 5 year term at an interest rate of 6.15%, you may lose Rs. 4729 over and above the TDS due to compounding.

TDS may also be deducted from the FDs principal amount

Tax deduction at source for FDs wherein bank at the point of source deducts tds is in most cases deducted from the accrued interest. But if the interest income is not sufficient then TDS can be deducted from the FDs principal amount as well. So because of it, the FD amount that was to earn compound interest at the decided rate for the next quarter comes down.

FD Maturity value on the receipt is provided without considering TDS

Importantly, when once books an FD with the bank, the bank hands over the FD receipt on which the maturity amount considering the time of deposit as well as rate is given. But this maturity value does not take into account the TDS value. And so the maturity value is not only reduced due to the TDS deducted but also because of compounding interest that the deducted TDS amount would have earned during the remaining course of the deposit.

Ways to Get the Full Maturity value on FDs

If the depositor's total taxable income including interest income from FD is below the basic tax exemption limit you can prevent such a tax deduction by submitting form 15G or 15H with the bank.

Another way is to spread your FD investment across banks such that total interest income in a particular financial year remains below the threshold of TDS deduction.

TDS deduction on FD allowed from Savings or Current account

Now if your bank allows that the TDS on FD interest can be deducted from the savings or current account then the full interest on FD without TDS will earn compound interest on the remaining deposit tenure. This way you will get the full maturity value mentioned on the FDR.

Banks providing facility to get TDS deducted on FD from savings or current or overdraft account

Leading bank including SBI has allowed this facility and customers can link savings or current account for TDS deduction via net banking.

Post it the TDS deduction in lieu of the FD interest shall be from the linked savings bank or current account.

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