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When To Submit Form 15G/15H At Your Bank To Avoid TDS On FD?
Fixed deposits (FDs) are among the most common investment instruments because they provide assured fixed returns, capital protection and tax benefits as well. Fixed deposit interest, on the other hand, is completely taxable, which limits the attractiveness of FDs. On FD interest, banks are required to subtract tax at source, or TDS. If your income falls below the exempted cap, you will not have to pay TDS for the interest you receive. TDS is required to be deducted at a rate of 10% by banks. The bank will subtract TDS at a rate of 20% if the depositor fails to have a permanent account number (PAN). You must inform the bank that your income is below the exempted cap to avoid TDS being deducted. And to avoid TDS on FD you must submit Form 15G or Form 15H to your concerned bank. These two forms are self-declaration forms that allow you to certify that your income is below the exempted threshold. Individuals under the age of 60 are exempted from paying income tax on income of less than Rs 2.5 lakh. Income up to Rs 3 lakh is tax-free for those over 60 but under 80. Income up to Rs 5 lakh is tax-free for anyone above the age of 80. For this reason, there are two kinds of forms: Form 15G for those under the age of 60 and Form 15H for those over the age of 60.
How interest income from FD is taxed?
Fixed Deposit interest income is completely taxable. It will be applied to your total income and taxed at the slab rates that relate to your overall income. Your Income Tax Return will disclose it under the heading "Income from Other Sources." When the interest income is credit to your account and not when the account matures, the bank deducts this tax at source. If you have a three-year fixed deposit, the bank can subtract TDS at the end of each year. You'll get the capital after tax has been deducted. The gross amount must then be added to your income, and TDS must be measured against your total amount of tax-debt.
TDS on fixed deposit
Let's understand when TDS is deducted from FD:
No TDS: The bank cannot subtract any TDS if the total interest income from all FDs with the bank is less than Rs 40,000 in a year. In the case of a senior citizen aged 60 and over, the cap is Rs 50,000.
TDS @ 10%: From all of your FDs with the bank, the bank calculates your annual interest income. If your interest income surpasses Rs 40,000 (Rs 50,000 for senior citizens), you will be subject to a 10% TDS deduction.
TDS @ 20%: If you do not submit your PAN number to the bank, they will subtract 20% TDS from your deposit. As a result, double-check that the bank has your PAN number.
When your overall income is below Rs 2.5 lakh: When the overall income is less than the minimum taxable limit, no TDS is deducted. Investors may earn more than Rs 40,000 interest income per year, but their overall income (including interest income) falls below the exempted income threshold (Rs 2.5 lakh for FY 2019-20). When a person owes no tax, the bank is unable to subtract TDS. That being said, where you submit Form 15G or 15H to claim interest income without TDS, the bank will not subtract TDS.
When to submit Form 15G or 15H to avoid TDS on FD?
Fixed deposit interest or FD interest income is taxed according to your income tax bracket. If you are in the lowest tax bracket, you will pay less tax. If you're in the highest tax bracket, you will pay tax in addition to the tax withheld by the bank. If your income is below the taxable cap, you can claim FD interest, by filing Form 15G if you are a regular citizen, or else you can submit Form 15H to your concerned bank if you are a senior citizen. These forms must be submitted at the beginning of the applicable fiscal or financial year. To avoid TDS in FY22, for example, you must fill and submit the forms at your concerned bank now.
