Fixed Deposits (FDs) have long been a preferred investment option for risk-averse individuals seeking stable returns. However, the Tax Deducted at Source (TDS) rules on FDs have often been a point of confusion for investors. In a recent update, the government has increased the TDS threshold on FDs, providing relief to many depositors. Here’s everything you need to know about the new rules and how they impact your investments.
TDS: What’s New in 2024?
The government has raised the TDS limit on interest earned from Fixed Deposits, making it more investor-friendly. Previously, banks and financial institutions were required to deduct TDS if the interest income from FDs exceeded ₹10,000 in a financial year. However, as per the latest update, this threshold has been increased to ₹40,000 for individual and Hindu Undivided Family (HUF) accounts. For senior citizens, the limit has been raised to ₹50,000, offering additional tax relief.
This change is part of the government’s efforts to simplify tax compliance and reduce the burden on small investors. It is especially beneficial for those who rely on FD interest as a primary source of income.
How Does TDS on FDs Work?
TDS is deducted by banks or financial institutions when the interest earned on FDs crosses the specified threshold. The current TDS rate is 10% if the depositor provides their Permanent Account Number (PAN). If PAN is not provided, the TDS rate increases to 20%. It’s important to note that TDS is deducted only on the interest income, not the principal amount.
For example, if you earn ₹45,000 in interest from your FDs in a financial year, TDS will be deducted at 10% (₹4,500) if you have submitted your PAN. However, if your total income falls below the taxable limit, you can avoid TDS by submitting Form 15G (for individuals) or Form 15H (for senior citizens) to your bank.
TDS: Key Rules to Keep in Mind
1. Threshold Limits:
General investors: ₹40,000 per financial year.
Senior citizens: ₹50,000 per financial year.
2. TDS Rates:
10% if PAN is provided.
20% if PAN is not provided.
3. Avoiding TDS:
Submit Form 15G/15H if your total income is below the taxable limit.
Ensure your PAN is updated with the bank.
4. Claiming Refunds:
If TDS has been deducted but your total income is below the taxable limit, you can claim a refund by filing your Income Tax Return (ITR).
Why This Change in TDS Matters
The increase in the TDS threshold is a welcome move for small investors and senior citizens who depend on FD interest for their livelihood. It reduces the hassle of filing for refunds and ensures that more money stays in the hands of depositors. Additionally, this change aligns with the government’s broader goal of promoting savings and financial security among citizens.
What Should Investors Do?
1. Review Your FDs: Check the interest earned on your FDs and ensure it does not exceed the new TDS threshold unless necessary.
2. Submit Forms: If eligible, submit Form 15G or 15H to avoid TDS deductions.
3. Update PAN: Ensure your PAN is linked to your bank accounts to benefit from the lower TDS rate.
4. Plan Your Investments: Consider diversifying your portfolio to include other tax-saving instruments like Equity-Linked Savings Schemes (ELSS) or Public Provident Fund (PPF).
The Bigger Picture
The increase in the TDS limit on FDs is a step towards making the tax system more investor-friendly. It not only simplifies tax compliance but also encourages individuals to save more without worrying about unnecessary deductions. As the financial landscape evolves, such reforms are crucial in building trust and promoting financial inclusion.
In conclusion, the new TDS rules on Fixed Deposits are a boon for investors, especially senior citizens and small savers. By staying informed and taking proactive steps, you can maximise your returns and minimise your tax liabilities. Keep an eye on further updates as the government continues to refine the tax framework in 2024.