Fixed deposits (FDs) are one of the most favoured instruments among investors as it provides guaranteed fixed returns and safety of capital. However, interest on fixed deposits is fully taxable, and this somewhat reduces the appeal of FDs.
Banks are required to deduct tax deducted at source or TDS on FD interest. However, in case your income is below the exempted limit, you need not pay TDS on the interest earned. Banks are required to deduct TDS at the rate of 10%. In case the depositor fails to submit a permanent account number (PAN) the bank will deduct TDS at the rate of 20%.
To prevent the bank from deducting TDS, you need to inform the bank that your income is below the exempted limit. You can submit Form 15G or 15H to the bank. These are self declaration forms in which you give an undertaking that your income is below the exempted limit.
For individuals aged below 60 years, income below ₹2.5 lakh is tax exempt. For those aged above 60 but below 80, income up to ₹3 lakh is tax exempt. Those aged above 80 years, income up to ₹5 lakh is tax exempt.
There are two categories of forms for the purpose—Form 15G is for those who are younger than 60 years, and form 15H is for those above 60 years of age.
You are required to submit these forms at the beginning of the relevant financial year. For instance, to avoid TDS in FY22, you should submit the forms now. It has to be submitted at every bank where you have a deposit.
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