Budget 2025 proposes to increase the limit for tax deduction at source (TDS) on interest earned by general (non-senior) citizens from fixed deposits from banks from the present Rs 40,000 to Rs 50,000 per financial year. These amendments will take effect from the 1st day of April 2025.
What is TDS?
TDS stands for Tax Deducted at Source. Before paying for any service or job, the payer deducts tax as part of the payment. Individuals and businesses are both required to pay TDS. An employer must cut a certain percentage of an employee’s salary as TDS before paying the salary. Afterwards, the employer must deposit the money with the government.
Other types of payments are also subject to TDS, including rent, commissions, interest payments by banks, professional fees, consultation fees, etc. Companies and institutions are required to deduct this tax and deposit it with the Income Tax Department within a specified time period.
Tax is not deducted at source from rent payments or fees paid to professionals. Regularly, TDS is paid to the central government as an advance tax. Payers are responsible for making payments. When filing your annual returns, you can claim TDS deducted from your payment.
How Employer Can Calculate TDS on Salary?
The employer calculates TDS by estimating the net taxable salary and deducting it from it. The net salary income is calculated by subtracting the tax-free allowances and exemptions from the gross salary. Once you declare tax-saving investments and expenses under Section 80C, 80D, or other sections, they will be deducted from your salary income. The salary is increased if you declare other income. The TDS is then deducted based on the slab in which your net taxable income falls.
Who deducts TDS on fixed deposit?
As TDS is the tax deducted on income at source, any financial institution or bank offering investments in Fixed Deposit schemes is responsible for deducting TDS on fixed deposit interest. As a general practice, the TDS on Fixed Deposit interest is an automatic deduction that takes place at the end of every financial year
What are the Rules and Regulations of TDS on FDs?
- TDS on FD is applicable only if the interest earned on fixed deposits exceeds the threshold limits in a given financial year.
- The bank or the financial institution in which the Fixed Deposit is held is responsible for deducting TDS on FD.
- TDS on FD is deducted at a flat rate of 10% rate in a given fiscal year where PAN details are available.
- The rate of TDS on Fixed Deposit interest increases to 20% if the PAN details of the investor are not available.
FAQs
TDS Interest Calculation Formula?
While online calculators do the math, understanding the underlying formulae can be useful. The formula for calculating interest on late deposit or short deduction of TDS is:
Interest = (TDS Amount x Interest Rate x No. of Months of Delay)/100
OR
Interest = (TDS Amount x Interest Rate x No. of Days of Delay)/(100 x 30)
Where:
– TDS Amount is the tax deducted at source but not deposited with the government by the due date
– Interest Rate is the rate prescribed as per the Income Tax Act for the relevant period
– No. of Months/Days of Delay is the period from the due date of TDS deposit till the actual date of deposit/payment
The interest amount calculated above may need to be compounded monthly or quarterly based on income tax rules for different scenarios.
In case TDS is partially paid during the delay period, the interest formulae are applied separately for the delay period pre and post-payment. The respective amounts are then added to arrive at the total interest liability.
Advantages of the TDS Calculator?
The TDS calculator enables you to determine the TDS amount that must be subtracted from a certain payment
The TDS calculator is easy to use and efficient because you can quickly determine the TDS amount
It aids in preventing any math errors when determining the TDS amount manually
It guarantees that you are abiding by all applicable tax laws and rules
It will assist in determining whether or not the TDS deducted is accurate.