Monday, October 9, 2017

How much TDS is deducted on Bank, Company and NRO Fixed Deposits?

TDS stands for Tax deducted at source, is income tax levied on interest earned by Fixed deposits. The rate on which TDS is applied varies, depending upon, whether the Fixed deposit is with a bank, a company or the post office. TDS also depends upon total interest earned on a financial year. For bank Fixed deposits, TDS is triggered when interest earned in a financial year (1 April to 31st March) is higher than 10K and for company fixed deposit or post office deposit, TDS triggered when interest earned on a financial year is more than Rs 5000.

Rate of TDS is 10% on interest income + 3% cess, which means total interest earned on FD is taxed at the rate of 10.3% for both resident fixed deposit with bank and company fixed deposit.

For NRI's if they have any NRO fixed deposit then TDS rate is flat 30.9%. Similarly for residents which have not furnished their PAN card details with banks, TDS is deducted at the rate of 20% on interest earned. 

To give you an example, if you have opened a regular FD of 10 lacs @8.5% interest rate per annum, then you will learn around Rs 85000 in first year (assuming interest are compounding yearly), since this is higher than exempted limit of 10K, it will be taxed at rate of either 10% (if PAN card details are submitted with bank) i.e. bank will deduct 8500 and only pay you Rs 76500. But, If you have not furnished your PAN card detail with the bank then your TDS will be just doubled i.e. taxed @ the rate of 20%. So the bank will deduct 17K as TDS and only pay you remaining 68K. 

When will bank deduct TDS on fixed deposit?

TDS is triggered when total interest earned in bank fixed deposit is greater than Rs 10,000 or greater than Rs 5,000 in company fixed deposit (e.g. Shriram transport fixed deposit or Mahindra finance fixed deposit) or Post office fixed deposit scheme. 

For NRO fixed deposits, there is no trigger and interest earned is always subject to TDS, unless you have submitted form 15G or 15H to the bank. Remember, the exemption limit of Rs 10,000 per financial year is now applicable to per bank instead of per branch before. 

In 2015, budget, TDS rules for bank fixed deposits are made more stringent. Earlier you could have open multiple FDs with different banks and different branches to prevent interest reaching to 10K in the single financial year per branch, hence avoiding TDS.

This is not possible now because from 2015 onward, instead of per branch rule is made for per bank. So, if your bank has core banking solution enabled, interest from all your FDs at the different branch is considered for TDS purpose. Though, don't worry there are still couple of ways to avoid TDS on interest earned on FDs

What is TDS rate for fixed deposits?

It varies. For a bank Fixed deposit, if your interest income is more than 10K and you have submitted your PAN card details then bank will deduct TDS at rate of 10% only on interest income, but if you have not furnished your PAN card detail then bank will deduct TDS at rate of 20%. 

The same rate is applicable for company fixed deposits as well. So if you have invested around 10 lakh rupees on Shriram transport FD or Mahindra finance FD which respectively gives interest of 9.5%, your interest income will be charged at rate of 10 and 20% depending upon your PAN detail with depositor. For NRO fixed deposit, there is no exemption and interest income is charged at flat 30.9%.

Here is the nice summary of when TDS will be applicable and at what rate TDS will be deducted.

When TDS will be applied and rate of TDS for Fixed deposit

That's all about how much TDS is deducted on fixed deposit interest. It's very important to pay attention to your TDS deduction otherwise the meagre interest earned by fixed deposit will be lost. If you are an NRI, then always do NRE or FCNR fixed deposit because interest earned on those deposits are not taxable on Indian and they are not subjected to TDS.


  1. Fixed deposit is a very popular investment scheme for everyone, but many people confused how much TDS is deducted, after reading this post I understand about TDS.

  2. You can reduce taxes on NRO by using DTAA declaration form. The usual way of submitting form 15G or 15H will not work in case of NRO fixed deposits.

  3. To understand how to deduct TDS through home loan firstly we need to understand the rules and condition of income tax rates, which says that TDS on Property is to be deducted whenever the buyer makes any payment to the seller for purchase of property.

  4. what about NRE fixed deposit? nothing mentioned.

    1. Hello @Unknown, NRE fixed deposit is completely tax free i.e. you don't need to pay income tax or TDS on interest earned on NRE fixed deposit, hence it is not mentioned.

  5. I'm a British citizen with OCI living and working in India (resident, paying taxes here only. The bank opened an NRO account which results in 30% tds on the interest. Did the bank open the right type of account? If yes how can I be more tax efficient?

  6. I'm a British citizen with an OCI, living and working in India (resident), I pay taxes only here. When bank opened an account for me, they opened an NRO one which results in tds of 30% on the interest earned. Did bank open the correct type of account? If yes, how can I make the situation more tax efficient?

    1. Hello BritInd, bank open correct type of account because you can deposit your salary in Indian rupees only on NRO account. They cannot open NRE account if you get paid in INR. Regarding TDS, you can claim that while filling your income tax returns.

  7. Hi i had life insurance policy with ICICI prulife. They are now deducting 30.9% tax as they reckon my status has changed to NRI. I am actually an Australian citizen with Oci. I have deposited 500,000 as premium and early 170,000 as interest. What should be the correct tax I will pay and how much will I get in return. Is there a reciprocal tax arrangement with Australia.