tax rules of a fixed deposit
  • TDS on Fixed Deposit, Know What Are the Tax Rules?

  • Published By:
  • Category: Finance
  • Published Date: July 1, 2022
  • Modified Date: July 14, 2022
  • Reading Time: 6 Minutes

Featured Image Caption: Tax Rules of a Fixed Deposit

Taxes are something we could never overlook; it’s a legal issue. But, what if we could tell you there is a good chance for you to reduce it. Bet you are aware of how investments work. So, you invest your money, and that money turns out to be working for you and earning your interest. This also means you are earning out finding the amount of income, and with income comes the effect of Tax, and how are you supposed to reduce it over here? This post can walk you through the tax rules of a fixed deposit and how to reduce some. Before that, let’s know more about how a fixed deposit works.

Why is there Tax Levied on a Fixed Deposit?

The fixed deposit is a vehicle of investment. A form of money being earned. Though you are not working for it, it is still a form of income. Any form of income will be taxed by the government. Now, the entire FD would not be taxed by the government. This is because the entire FD is not a form of income. But, only the interest that is earned would be taxed.

If You Invested in an FD, How Would it Work?

This is something you definitely need to know before you start investing. The route map to the FD process can give you a clear understanding of everything that is taking place, would take place, and your part in the whole of it.

Step 1 –

Here this involves you conducting research among banks and NBFCs to see what can give you the best returns. To know which one would offer you the highest interest rate for the chosen tenure. For instance, you can go through the interest rate in Tamilnad Mercentile fixed deposit, SBI FDs, HDFC FDs, Jana Small Finance Bank, and so much more – and finally conclude the best place to open a fixed deposit account.

Step 2 –

Once you find the source of your investment, you can open the fixed deposit account for tenure from 7 days to 10 years, as to how long you would prefer to be invested. Now, you can deposit your money into the account and leave it at that.

Step 3 –

If you had chosen to be invested for a period of 6 years, then your money needs to be in that account for six years, and you cannot withdraw it until this period is over. But, if you suddenly face some kind of emergency and want to withdraw it, you can. But, when you do, the bank will charge you with some sum penalty against the premature withdrawal.

Unless it is not withdrawn throughout the tenure each year, it will earn some amount of interest over the principal amount. This interest and principle can be withdrawn at the end of the tenure.

This is also the interest that would be taxed by the government.

What are the Rules of Taxation on the Fixed Deposit?

Under the provisions of the Income Tax Act – fixed deposit interest is taxed under – income from other sources in the IT returns and is taxed at the rates that are applicable. When the interest that you had earned on your FD is more than Rs ten thousand in a financial year, then the banks would deduct a TDS of 10%, and that is also in the case your PAN details have been submitted. If your PAN card details are not submitted, it will be 20%.

How to Reduce the Tax Burden on your Fixed Deposit?

You also need to note that your net income is lesser than the minimum taxable amount. Even when you earn income that is more than Rs. 10,000, there will be no TDS deducted. When this happens, you need to inform the bank about the net income by the submission of Form 15G and if you are below 60 years of age. If you are above 60 years of age, then you will have to submit Form 15H in order to avoid the deduction of TDS on the interest that you had earned.

However, for senior citizens, the tax exemption on interest is up to Rs. 50,000, and this means that if you are a senior citizen, you will not have to pay any tax on the interest of your FD unless it crosses Rs. 50,000.

Who is the Fixed Deposit Most Suitable for?

Want to know if the fixed deposit investment tool is your type of investment? Check out if you belong in the below mentioned criteria:

  • Are you someone who does not want to take any risks? Taking risks means when you do not want to lose any form of investment to market volatility. Most importantly, you cannot afford to lose any form of your investment.
  • Do you not know a lot about the stock market, or do you not want to do a lot of research? If that was a yes, this is a safe basket for you.
  • Are you looking for more security than big interest rates?
  • Do you have a lump sum amount of money and want to keep it somewhere safe but, you still want to earn higher interest rates than a savings account would give you?
  • Do you want to lock some sum of money for a particular period of time?

If you say yes to any one of those questions, you can start investing in the fixed deposit without thinking too much. A fixed deposit can go a long way for you when you choose the right form of source. Moreover, there are various benefits that come along with fixed deposits, such as flexibility with tenure, greater interest rates than savings accounts, assured returns, security, tax benefits, and much more.


Now you know how much you would be deducted as taxes from your fixed deposit and how much you could also claim. Being 100 percent informed about all of your investments can keep you one step ahead of the game without even trying.

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