Why is TDS Not Deducted on your Fixed Deposit Interest?
Introduction to TDS on Interest
When your interest from a fixed deposit (FD) does not cross a specific threshold amount, the tax deduction at source (TDS) is not applicable. This can happen when your income from interest does not exceed Rs. 40,000 in a financial year. However, senior citizens have a slightly higher threshold of Rs. 50,000.
It's important to understand the conditions under which TDS is not deducted and why it is important to file your income tax returns even if TDS is not applicable.
Understanding the TDS Limitations
Normal Conditions:
When the interest income from a fixed deposit does not exceed Rs. 40,000 in a financial year, TDS is not applicable. This limit is higher for senior citizens, at Rs. 50,000.
However, if your total interest income exceeds these limits but is still less than Rs. 2,50,000 (or Rs. 40,000 for senior citizens), you can still submit Form 15G or Form 15H to claim exemption from TDS.
In cases where your total interest income under the 'interest' head exceeds Rs. 2,50,000 (or Rs. 40,000 for senior citizens) in a financial year, TDS is deductible.
TDS on Fixed Deposits
TDS on interest earned from deposits is governed by Section 194A of the Income Tax Act. This section applies if the interest income amounts to Rs. 40,000 or more in a financial year. Senior citizens, on the other hand, have a higher threshold of Rs. 50,000.
It's important to note that TDS is not applicable on interest earned from a fixed deposit at any branch of a single bank in a financial year up to AY 2024-25 if the interest does not exceed Rs. 40,000. If Form 15G or 15H is submitted, TDS would also be exempted from such interest income.
Important Considerations
Interest Income Limits:
If the interest payable on your fixed deposit for a financial year is less than Rs. 40,000 for non-senior citizens and Rs. 50,000 for senior citizens, TDS is not deducted, but you are still liable to include the FD interest in your income and pay income tax on that.
If you submit Form 15G or 15H, TDS will be exempted. However, it is recommended to file the income tax return to keep your records up to date and eligible for tax benefits.
Conclusion:
The TDS on your fixed deposit interest will not be deducted under certain conditions. It's essential to understand these conditions and ensure you are compliant with your tax obligations, even if TDS is not applicable to your income. By staying informed and filing your tax returns, you can ensure that you are not missing out on potential tax benefits.