No, TDS (Tax Deducted at Source) is generally not applicable on the entire "maturity amount" itself, but rather specifically on the interest income earned from deposits like Fixed Deposits (FDs) or Recurring Deposits (RDs). Importantly, this TDS on interest is typically deducted periodically (often annually) throughout the deposit's tenure, and not solely as a single deduction at the final maturity payout.
Understanding TDS on Deposit Interest
When you invest in a bank deposit, the "maturity amount" consists of your original principal investment plus the accumulated interest. TDS is solely levied on this interest income if it exceeds certain thresholds in a financial year. The principal amount you invested is returned in full, as it is your own capital.
Banks are mandated to calculate and deduct TDS when the interest is due for the deposit, and not solely when they finally pay out the maturity amount. This means that the tax on your interest income is accounted for periodically, often on an annual basis, throughout the life of the deposit, rather than being a one-time deduction only at the time the FD or RD matures. Therefore, by the time your deposit reaches maturity, any applicable TDS would have already been deducted from the interest accrued over its tenure.
Key points regarding TDS on deposit interest:
- Applies to Interest: TDS is deducted only on the interest component of your deposit, not on the principal amount.
- Periodic Deduction: Banks deduct TDS on interest when it becomes due (e.g., annually, half-yearly), not just at maturity.
- Threshold Based: TDS is only applicable if the total interest earned from all deposits with a particular bank (across all branches) exceeds a specified limit in a financial year.
- PAN is Crucial: Providing your Permanent Account Number (PAN) is mandatory. If you do not provide your PAN, the TDS rate will be significantly higher.
When and How TDS is Applied
The applicability of TDS depends on your total interest income from bank deposits within a financial year and your age.
TDS Thresholds for Interest Income
| Category | Annual Interest Threshold (FY 2023-24) | TDS Rate (with PAN) | TDS Rate (without PAN) |
|---|---|---|---|
| General Public (Below 60 years) | ₹40,000 | 10% | 20% |
| Senior Citizens (60 years and above) | ₹50,000 | 10% | 20% |
Note: These thresholds apply to interest earned from all deposits (FDs, RDs, Savings Accounts) with a single bank in a financial year.
Avoiding TDS Deduction
If your total annual income is below the taxable limit, you can prevent TDS deduction by submitting specific forms to your bank:
- Form 15G: For individuals below 60 years of age.
- Form 15H: For senior citizens (60 years and above).
These forms declare that your total income is below the taxable threshold and therefore no tax is liable to be paid. These forms must be submitted at the beginning of each financial year or when you make a new deposit.
Impact on Your Maturity Payout
When your deposit matures, the amount you receive will be your original principal plus the net interest earned. The "net interest" means the total interest accrued over the deposit tenure minus any TDS that has already been deducted by the bank periodically throughout the deposit's life.
Example:
Let's say you invest ₹1,00,000 in a 3-year FD at 7% annual interest, compounded annually.
- Year 1 Interest: ₹7,000. If your total interest from this bank (and other sources) for the year is below the threshold, no TDS is deducted.
- Year 2 Interest: ₹7,490 (on ₹1,07,000). If this interest, combined with other interest, crosses the threshold, the bank will deduct 10% TDS from ₹7,490 (i.e., ₹749) when the interest becomes due.
- Year 3 Interest: ₹8,014 (on ₹1,14,490). Again, if applicable, TDS will be deducted from this amount.
At maturity, you receive the principal plus the total interest after these periodic TDS deductions. The bank provides a TDS certificate (Form 16A) detailing the tax deducted, which you can use when filing your Income Tax Return.
Important Considerations for Savers
- PAN Linkage: Ensure your PAN is linked to all your bank accounts to avoid higher TDS rates.
- Clubbing of Interest: Banks consider interest from all your accounts (savings, FD, RD) for TDS purposes.
- Tax Planning: Regularly review your interest income and consider submitting Form 15G/15H if eligible to avoid unnecessary TDS.
- FD Calculator: Utilize online FD calculators to estimate your maturity amount and potential interest earnings to plan for TDS.
FAQs on TDS and Maturity
Is TDS deducted only at maturity?
No, banks calculate TDS at the time the interest is due for the deposit (e.g., annually or half-yearly), not just when they pay the maturity amount. Thus, the tax on the interest income is typically paid annually and not solely at the time of the FD maturity.
What happens if I don't submit Form 15G/15H, but my income is below the taxable limit?
If you don't submit Form 15G/15H, and your interest income crosses the TDS threshold, the bank will deduct TDS at the applicable rate (10% with PAN, 20% without PAN). You can then claim a refund of this deducted tax when you file your Income Tax Return, provided your total tax liability for the year is zero or less than the TDS deducted.
