Deciphering TDS Deduction on Fixed Deposits

TDS deduction on fixed deposits (FD) occurs when the interest earned on an FD exceeds Rs.40,000 in a financial year. In such cases, banks automatically deduct 10% TDS (Tax Deducted at Source) from the interest. For instance, if the interest is Rs.45,000, the bank deducts Rs.4,500 as TDS, and you would ideally receive Rs.40,500. The deducted TDS is sent to the income tax department. If your total income is below the taxable limit, you could claim a refund by filing an income tax return. Understanding TDS on FD is crucial for effective financial planning.

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Key Takeaways

TDS deduction on FD occurs when the annual interest exceeds Rs.40,000

Banks automatically deduct 10% TDS on interest earned from a fixed deposit 

TDS on fixed deposits ensures that a portion of your interest income goes to the income tax department

If your total income is below the taxable limit, you could claim a refund for the TDS deducted on FD

Always check if TDS on FD applies to your interest income to avoid surprises

Plan your finances considering the impact of TDS deduction on fixed deposit interest

Understanding TDS in fixed deposit could help you manage your tax liabilities effectively

Frequently Asked Questions
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TDS deduction on FD is when the bank deducts a percentage as tax before giving you the interest on your FD.
When the interest earned on your fixed deposit surpasses a specified threshold, typically Rs.40,000 in a year, 10% TDS is deducted.
You can't avoid TDS on fixed deposits if your interest exceeds Rs.40,000 in a year. However, you could manage your taxes efficiently by considering your taxable income.
The deducted TDS on FD is sent to the income tax department. If your total income falls below the taxable bracket, you could claim a refund by filing your income tax return.
TDS deduction on FD could reduce your actual returns. For instance, if your interest is Rs.45,000 and TDS is deducted, you'll receive only Rs.40,500 after the deduction.
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