Section 194A: TDS on FD Interest Income Explained
- Rajesh Kumar Kar
- 2 days ago
- 9 min read
Section 194A of the Income Tax Act, 1961 governs the deduction of Tax Deducted at Source (TDS) on interest income other than interest on securities. It primarily applies to interest earned from fixed deposits, recurring deposits, loans, and advances by Indian residents. The provision ensures that tax is deducted at the source before payment, promoting timely compliance and minimizing evasion.
Tax on interest income is deducted when the amount exceeds specified limits, and the rate depends on whether the depositor has provided a valid PAN. Banks, NBFCs, and post offices must deduct TDS before crediting interest to an account or making payment.
Table of Contents
What Is Section 194A of the Income Tax Act
Section 194A of the Income Tax Act governs the deduction of Tax Deducted at Source (TDS) on interest income earned from deposits other than securities. It primarily applies to fixed deposits, recurring deposits, and interest from loans or advances. The provision mandates banks, cooperative societies, and financial institutions to deduct TDS when the interest credited or paid to a resident exceeds the specified threshold limit in a financial year. This helps ensure that interest income is properly reported and taxed in the hands of the recipient.
When Is TDS Deducted on FD Interest Income
TDS under Section 194A is deducted when the total interest credited or paid during a financial year exceeds the prescribed threshold. For banks and post offices, TDS applies when the cumulative interest on fixed or recurring deposits exceeds ₹40,000 in a year (₹50,000 for senior citizens). The deduction occurs at the time of crediting the interest to the depositor’s account or at the time of actual payment, whichever is earlier. This ensures that taxpayers cannot defer tax liability by delaying withdrawal.
Threshold Limits for TDS on Fixed Deposits under Section 194A
The threshold limits vary based on the depositor’s category and institution type:
For individuals and Hindu Undivided Families (HUFs): ₹40,000 per financial year.
For senior citizens (aged 60 years or above): ₹50,000 per financial year.
For other institutions like cooperative banks: the same ₹40,000 limit applies. If the interest earned remains below these limits, no TDS is deducted. However, if the total interest crosses the limit, TDS is deducted on the entire amount, not just the excess.
TDS Rates Applicable on FD Interest Income
The standard TDS rate under Section 194A is 10% if the depositor provides a valid PAN. If PAN is not furnished, TDS is deducted at a higher rate of 20%. For instance, if an individual earns ₹60,000 in interest from a bank FD, the bank will deduct ₹6,000 as TDS if PAN is submitted, or ₹12,000 if PAN is missing. There is no surcharge or cess on TDS at the deduction stage; these apply only during final tax computation while filing the ITR.
How to Avoid TDS Deduction Using Form 15G and Form 15H
Taxpayers whose total income is below the taxable limit can avoid TDS by submitting Form 15G (for individuals below 60 years) or Form 15H (for senior citizens). These self-declaration forms must be submitted at the beginning of the financial year to the bank or post office where the FD is held. The forms declare that the taxpayer’s income is below the taxable threshold, exempting the payer from deducting TDS. However, incorrect or false declarations may lead to penalties under the Income Tax Act.
Section 194A vs Section 195: TDS for Residents and NRIs
Section 194A applies only to resident individuals and HUFs, whereas Section 195 governs TDS for non-residents. Under Section 195, banks are required to deduct TDS on any interest paid to Non-Resident Indians (NRIs) at 30% (plus surcharge and cess), unless reduced under a Double Taxation Avoidance Agreement (DTAA). Therefore, residents and NRIs are subject to different TDS provisions, rates, and exemption rules based on their residential status.
Exemptions from TDS under Section 194A
Certain categories of interest payments are exempt from TDS under Section 194A:
Interest paid by a partnership firm to its partners.
Interest paid on savings bank accounts.
Interest paid to banks, LIC, UTI, and insurance companies.
Interest earned on NRE (Non-Resident External) deposits.
Interest income below the prescribed threshold. These exemptions ensure that TDS applies only where significant taxable interest income is earned.
Impact of PAN Submission on TDS Deduction
Providing PAN details to the bank or financial institution is crucial. Without PAN, the bank is required to deduct TDS at 20% instead of the standard 10%. Additionally, if PAN is not linked with Aadhaar or if the account is non-compliant, the deducted TDS may not reflect properly in the taxpayer’s Form 26AS or Annual Information Statement (AIS). This can lead to mismatches during ITR filing, resulting in refund delays or additional tax demands.
How to Claim Refund of TDS on FD Interest Income
If the total tax deducted exceeds the final tax liability, the taxpayer can claim a refund while filing their income tax return. To do this, they must report total interest income under “Income from Other Sources” and include TDS details as per Form 26AS or AIS. The refund is credited directly to the bank account after verification by the Income Tax Department. Platforms like TaxBuddy simplify this by auto-fetching TDS details and ensuring accurate refund claims.
Practical Example of TDS Calculation on FD Interest
Suppose an individual earns ₹70,000 in interest from a bank FD in FY 2024–25. Since the amount exceeds ₹40,000, TDS applies at 10%. The bank will deduct ₹7,000 as TDS and credit ₹63,000 to the account. The depositor must declare the full ₹70,000 as income in their ITR and adjust the ₹7,000 TDS while computing total tax liability. If the total income remains below the basic exemption limit, the individual can claim a refund for the deducted amount.
How Banks and NBFCs Deduct TDS under Section 194A
Banks, NBFCs, and cooperative societies are responsible for deducting TDS on eligible interest payments. The deduction takes place either at the time of crediting the interest to the depositor’s account or at the time of actual payment—whichever occurs first. The deducted TDS must be deposited with the government within the prescribed deadlines and reflected in the taxpayer’s Form 26AS.
Common Mistakes to Avoid While Managing FD TDS
Common errors include failing to declare total interest income across multiple FDs, ignoring TDS entries in Form 26AS, or submitting incorrect PAN details. Some taxpayers mistakenly assume that TDS deduction means no need to report interest income in ITR, which can trigger mismatches or notices. Maintaining updated records and filing returns accurately through trusted platforms like TaxBuddy helps prevent such issues.
Filing ITR to Report FD Interest and Claim TDS Credit
All interest income, even if TDS has been deducted, must be declared under the “Income from Other Sources” head while filing ITR. The taxpayer can claim credit for the TDS already deducted by the bank by matching it with Form 26AS or AIS. TaxBuddy’s automated system syncs these details, ensuring all credits are accurately reflected and refunds are processed quickly without errors.
Role of TaxBuddy in Simplifying FD TDS and ITR Filing
TaxBuddy simplifies tax filing by automatically detecting all interest income and TDS entries from Form 26AS and AIS. It ensures that taxpayers claim the correct deductions and avoid duplicate reporting. The platform also provides expert-assisted filing options to handle complex cases such as multiple FDs, joint accounts, or senior citizen exemptions, ensuring complete compliance and maximum refund eligibility.
Conclusion
Section 194A ensures proper taxation of interest income by requiring banks and financial institutions to deduct TDS above specified limits. Understanding how TDS works helps taxpayers avoid penalties and claim accurate refunds. With the increasing interlinking of PAN, Aadhaar, and bank data, managing FD-related TDS has become simpler but requires precision. TaxBuddy offers the most convenient and reliable way to file returns, verify TDS credits, and claim refunds with confidence.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Is TDS on FD interest deducted every year or at maturity?
TDS on fixed deposit (FD) interest is deducted annually or whenever the interest is credited to your account, whichever comes earlier. Even if the FD matures after several years, the bank deducts TDS every financial year based on accrued interest. This ensures that the tax liability is distributed evenly instead of being applied entirely in the year of maturity.
Q2. Can I submit Form 15G or 15H after TDS has been deducted?
Yes, you can still submit Form 15G (for individuals below 60) or Form 15H (for senior citizens) after TDS has been deducted, but it will apply only to future interest payments. The bank cannot refund TDS already deducted; you will need to claim that amount as a refund when filing your income tax return by reporting your total income and TDS details.
Q3. What if my total income is below the taxable limit but TDS is deducted?
If your total income, including FD interest, is below the basic exemption limit, you can still file your income tax return and claim a full refund of the TDS deducted. Ensure you report your total income under ‘Income from Other Sources’ and reconcile the TDS details from your Form 26AS or AIS for a smooth refund process.
Q4. Is TDS applicable on interest earned from recurring deposits?
Yes. Since June 1, 2015, interest on recurring deposits is also subject to TDS under Section 194A. Earlier, TDS was applicable only to fixed deposits, but now recurring deposit interest is treated the same way. The TDS is deducted once the total annual interest across all deposits in a bank exceeds ₹40,000 (₹50,000 for senior citizens).
Q5. Do cooperative banks also deduct TDS under Section 194A?
Yes. Cooperative banks are also required to deduct TDS on interest paid to depositors if the total annual interest exceeds ₹40,000 (₹50,000 for senior citizens). The deduction rate is 10% if the depositor’s PAN is linked. If PAN is not provided, TDS is deducted at 20%.
Q6. Is TDS applicable on savings account interest
No. Interest earned on savings bank accounts is not subject to TDS under Section 194A. However, the interest remains taxable under the head ‘Income from Other Sources.’ You can claim a deduction of up to ₹10,000 (₹50,000 for senior citizens) under Section 80TTA or 80TTB while filing your ITR.
Q7. How can I check the TDS deducted by my bank?
You can verify the TDS deducted by your bank using Form 26AS or the Annual Information Statement (AIS) on the Income Tax portal. These forms display the total TDS deducted, the deductor’s details, and the exact amount credited to your PAN. Regularly reviewing these records helps ensure that all deductions are correctly reflected before filing your return.
Q8. What happens if PAN is not linked to my bank account?
If your PAN is not provided or linked to your bank account, the bank will deduct TDS at a higher rate of 20% instead of the standard 10%. Additionally, the TDS deducted might not appear promptly in your Form 26AS or AIS, leading to mismatches during ITR filing. Linking your PAN with the bank account ensures accurate TDS credit and prevents higher deductions.
Q9. Can senior citizens avoid TDS on FD interest
Yes. Senior citizens can avoid TDS by submitting Form 15H to their bank, declaring that their total income is below the taxable threshold. Moreover, under Section 80TTB, they can claim a deduction of up to ₹50,000 on interest income from bank deposits, post office deposits, and cooperative societies, further reducing their tax burden.
Q10. Is TDS deducted on interest from post office deposits?
Yes, TDS applies to post office time deposits when the annual interest exceeds ₹40,000 (₹50,000 for senior citizens). While interest on savings accounts in post offices is exempt from TDS, time deposit interest is fully taxable. The post office updates this deduction in Form 26AS, similar to banks.
Q11. What if TDS deducted is not visible in Form 26AS?
If TDS is missing from your Form 26AS or AIS, first confirm with your bank whether the deduction was made using your correct PAN. If the issue persists, request the bank to revise its TDS return. You can also raise a grievance through the Income Tax e-filing portal to correct the discrepancy before filing your ITR.
Q12. How can TaxBuddy help in claiming TDS refunds on FDs?
TaxBuddy simplifies the refund process by automatically importing TDS data from your Form 26AS and AIS. The platform reconciles interest income, checks for mismatches, and ensures accurate refund claims while filing your ITR. It also helps you avoid errors like double reporting or missed credits, ensuring faster refund processing and complete compliance under Section 194A.
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