Interests are considered part of your income and hence, are taxable under the Income Tax Act of 1961. In the same way, interests earned on the FD investment are also taxable. As per Section 194A of the aforementioned act, TDS is charged at a rate of 10% on your interest if your earnings exceed ₹40,000.
However, if you are a senior citizen, the TDS will be charged only if your interest income exceeds ₹50,000. Section 194P of the same act also allows you to avoid paying 10% TDS on FDs for senior citizens.
To avail of this benefit, you will have to file Form 12BBA. So, read on to know more about TDS on interest on FD and how you can avoid paying it on FD for senior citizens.
What is TDS on Interest on FD?
Tax Deducted at Source (TDS) is a form of tax payable on interest that you earn on FD. In case you have invested in an FD from a bank and your earnings exceed ₹40,000, the interest will be taxable. The taxable limit on interest on FD for senior citizens is ₹50,000.
However, if you have invested in an FD with an NBFC, the interest income of over ₹5,000 will attract TDS. If you wish to check TDS on your FD, you can find it on Form 16A or Quarterly Interest Certificate issued by your FD issuer.
TDS on Interest on FD for Senior Citizen
The following are some of the notable points that you need to know about TDS on interest on FD for senior citizens.
- All individuals over the age of 60 years are considered senior citizens
- If your interest income on FD for senior citizens exceeds ₹50,000, 10% TDS will be charged on it
- As per Section 194A of the Income Tax Act of 1961, the TDS is not applicable on the FD interest if your total income is under the basic taxable limit
- The TDS on interest on FD is deducted at the time of the credit of FD, i.e., at the end of each year
- If you fail to attach your PAN card or Form 15H, TDS at the rate of 20% will be charged on your interest earnings
- In case you are a Non-Resident Indian (NRI), the rate of TDS on interest on FD will be 30%
For senior citizens, the Government of India also provides several relaxations at the time of filing the Income Tax Return (ITR).
If you are a senior citizen investing in a fixed deposit, you must know about the following details related to the ITR filing:
- The old tax regime offers a tax exemption for senior citizens (between 60 to 80 years of age) having an annual income of below ₹3 Lakhs
- The basic tax exemption limit for super senior citizens (above 80 years of age) under the same regime) is ₹5 Lakhs
- If your total income is below the basic taxable income, you are not required to pay TDS on interest on FD
- Under Section 194P, if you are a resident Indian of over 75 years, you will be exempt from filing Income Tax Return (ITR) on certain conditions
What is Section 194A of the Income Tax Act?
Section 194A of the Income Tax Act of 1961 exempts senior citizens from filing Income Tax Return (ITR).
However, to avail of this exemption, you need to fulfil certain conditions:
- Your age must be above 75 years
- You should be a resident of India in the previous year
- Only those having pension and interest as their source of income can avail of this exemption
- The senior citizens will need to submit a declaration to their FD issuer to get the exemption
How Senior Citizens Can Avoid TDS on Interest on FD?
To avoid paying TDS on interest on FD, senior citizens can avail of the benefits provided under Section 194. To get these benefits, all you have to do is file Form 12BBA to the FD issuer.
The Form 12BBA contains the following details:
- Tax deductions to be claimed under Sections 80C to 80U
- Tax rebate to be claimed under Section 87A
- Total annual income from pension and interest
Filing Form 12BBA allows you to enjoy an exemption from filing ITR. Not just that, it also helps you in avoiding 10% TDS on interest on FD.
In conclusion, if you are a senior citizen, a fixed deposit is a smart investment option for you. This is because you get to enjoy better returns as senior citizen FD rates are generally higher than regular FDs.
However, the interest on FD for senior citizens is taxed at 10% TDS if it exceeds ₹50,000. You can avoid paying TDS if you are a resident Indian of over 75 years earning from pension and interest. Section 194A exempts senior citizens from filing ITR and paying TDS on interest-earning.
For this, all you have to do is file Form 12BBA with your bank where you have FD. Keep these tips in mind when investing, as it will help you optimise your earnings. Moreover, it will ensure that you do not pay more tax than needed, in a financial year.