Invest Rs.10 lakh in an FD at 7% and expect Rs.70,000 interest at the end of the year. But what actually arrives in your account is Rs.63,000. The missing Rs.7,000 has already been sent to the Income Tax Department by your bank. That deduction at the point of payment is Tax Deducted at Source — TDS.
TDS is the mechanism under the Income Tax Act, 1961 that ensures tax is collected continuously throughout the year rather than in a lump sum at filing time. The bank acts as deductor — it withholds a portion of the interest income and deposits it with the government on your behalf. You receive the net amount and get credit for the tax already paid when you file your ITR.
| Parameter | Details |
| Full Form | Tax Deducted at Source |
| Governing Section | Section 194A — Income Tax Act, 1961 (for bank interest) |
| TDS Threshold | Rs.40,000 annual FD/RD interest per bank (Rs.50,000 for senior citizens 60+) |
| TDS Rate | 10% if PAN provided; 20% if PAN not provided |
| Bank Deposits TDS By | 7th of the following month via challan to central government |
| TDS Certificate | Form 16A — issued quarterly by bank to depositor |
| Verify TDS | Form 26AS and AIS on Income Tax portal under your PAN |
| Avoid TDS | Submit Form 15G (below 60) or 15H (60+) at start of each April |
| Claim Credit | TDS treated as advance tax — claimed as credit while filing ITR |
The Form 15G and 15H Solution
Many people pay TDS on FD interest when they don’t actually owe any tax — because their total income across all sources is below the exemption limit. The solution is simple and free: submit Form 15G (for those below 60 years) or Form 15H (for senior citizens aged 60 and above) to your bank at the start of every April. These forms are a self-declaration that your total estimated income for the year will not exceed the basic exemption limit. The bank stops deducting TDS on that account’s interest for the entire financial year.
The important point is that these forms must be submitted fresh every April — they don’t carry forward from previous years. And they apply per bank. If you have FDs at SBI, HDFC Bank, and Axis Bank, you need to submit the forms at each bank separately. Miss one and that bank will deduct TDS regardless of what the others are doing.
Frequently Asked Questions
Q: What does TDS stand for in banking?
TDS stands for Tax Deducted at Source — the amount a bank withholds from your FD interest income and deposits with the Income Tax Department on your behalf, when your annual interest from that bank exceeds Rs.40,000 (Rs.50,000 for senior citizens).
Q: Is TDS deducted on savings account interest?
Banks do not deduct TDS on savings account interest. However, savings interest is still taxable income — you must declare it in your ITR. Section 80TTA allows a deduction of up to Rs.10,000 on savings account interest for individuals below 60.
Q: What if TDS was deducted but I owe less tax?
File your ITR and claim the excess TDS as a refund. The Income Tax Department will credit the difference to your registered bank account. This is the standard mechanism and works reliably for most straightforward cases.
Q: What is Form 26AS?
Form 26AS is the annual consolidated tax statement available on the Income Tax portal at incometax.gov.in. It shows every TDS deduction against your PAN — from bank FD interest, employer salary, and any other source. Always match it against your Form 16A from the bank before filing your ITR.
