What are the Tax Rules for Bank FD Account?
By Anupama Deshpande | July 09, 2019

Bank Fixed Deposit (FD) is a very popular investment instrument for most of the Indians. Assured returns and flexibility of tenures make it more attractive option. Many of FD account holders are not much aware of tax rules for bank FD account and hence get confused about why TDS is deducted by bank and what are their tax liabilities towards interest earned on bank FD.

It is important to know as to what are the tax rules for Bank FD Account?, before investing in a bank FD. For your ready reference, we are giving below the details of tax rules for Bank FD Account which will surely be helpful for you:

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The interest income from bank fixed deposit is fully taxable and there is no income tax exemption on the interest earned. You need to pay tax on it according to your income tax slab ranging from 5% to 30% with applicable surcharge & cess.

TDS will be deducted from the interest income, only if the interest income is of Rs 40,000 and above.

TDS will be deducted from the interest income, only if the interest income is of Rs 50,000 and above.

Banks deduct tax at source (TDS) at the rate of 10% if the interest income for the year is more than Rs 40,000 for non-senior citizens and Rs 50,000 for senior citizens. The TDS rate is 10% only when the FD account holder has furnished his/ her PAN information to the bank in time, otherwise if he/ she has not submitted valid PAN with the bank, then the bank will deduct TDS at a higher rate of 20%.

Banks generate and send TDS certificates to the FD account holders mentioning the amount of deduction and the rate of deductions that are made.

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For a joint FD account, TDS will only be deducted against the primary (first) account holder as interest income will be treated to be earned by him/ her and not by the joint holder. Therefore, the joint holder of FD will not have any TDS related issue.

You can avoid TDS by doing following things:

• Submit Form 15G/ 15H to avoid TDS
• Invest in the name of HUF
• Split Your FD Amount and deposit in FDs of different banks
• Invest in the middle of a financial year
• Invest in the name of Senior Citizens

In Budget 2018, a new section 80TTB had been introduced in the Income-tax Act for senior citizens which allows deduction of maximum of Rs 50,000 for senior citizens on the interest income earned from the deposits held with bank, post office or co-operative society engaged in banking in a given financial year. Such income earned from the deposits includes interest earned from savings accounts, fixed deposits, deposits in schemes such as Senior Citizens Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), etc.

If you open a bank FD in the name of your minor child or non-working spouse, the interest income will be clubbed with your income and you need to pay income tax on that according to your income tax slab.

FD made for a tenure of 5 years and above qualifies for a tax deduction of up to Rs. 1.50 lakhs under Section 80C of the Income Tax Act. Premature withdrawal is not allowed in case of tax-saver fixed deposits. Even loan facility is also not offered against Tax Saver FD. The interest income generated from Tax Saver FDs is subject to the same tax rules as any other regular FD. Before investing in tax saver FDs, it is better to compare them.

People invest in bank FDs but often neglect to take into account the income earned on their FDs which is absolutely wrong and one should not forget to consider interest income while filing the income tax returns. One must take the interest on FD under the head "Income from other sources".

Those FD account holders, who do not have any taxable income, must submit the self-declaration form 15G/ 15H without fail in order to avoid TDS.