Suppose there’s an fd of Rs. 100000 @ 10% interest for a year. Now after Q2, a TDS of Rs. 1000 was deducted, ignore the interest limit breach part and that no 15g/h is there. Then for the remaining two quarters there will be no interest on the TDS amount that has been deducted? I mean instead of the maturity value of Rs. 110000 as mentioned on the fd certificate, the maturity value will be 110000-1000(TDS)-Interest amount on 1000 for 2 quarters? A SFB bank is saying that there is no compounding benefit on the amount deducted as tds, not able to understand this part. Never heard this before in any bank.

Can someone please explain how it works with a better example? Also from this financial year onwards what is the interest limit for seniors and non senior citizens on which no tds is deducted?

The Bank"s stand appears to be logical to me. In the Bank’s FD statement the bank may show the accrued interest during the quarter, the TDS amount deducted and show the balance amount as closing balance for that quarter. Interest for the next quarter will be calculated on this closing balance only.

Thanks. This is my exact question, just trying to understand this with an example. Say an fd of 100000 @ 10% interest for a year. Now after Q2, a TDS of Rs. 1000 was deducted. Then instead of the maturity value of Rs. 110000 as mentioned on the fd certificate, the maturity value will be 110000-1000(TDS)-Interest amount on 1000 for 2 quarters? Is this correct?

And do banks mention, maybe on the fd statements or somehwere else, how much is the loss in fd interest % due to the fact that interest was not given on the TDS amount? Like the original fd was @ 8% intrerest, after tds deduction, how much was the actual interest rate?

Also from this financial year onwards what is the interest limit for seniors and non senior citizens on which no tds is deducted?

As per the IT Act, bank needs to deduct TDS on interest paid / accrues to the customer and deposit it to the Government. Thus, there will be no interest on TDS amount since it is deducted and paid to the government against your PAN. In case your total income is below taxable income, you can claim the refund of the same while filing ITR. You do not have to wait till maturity of FD for claiming of refund of TDS amount deducted by the bank.

For Senior/ Non senior citizen, the limit stands at non taxable income. In case your total income across all sources is below basic exemption limit then you can file respective forms, submit it to bank and there will be no TDS on interest income.

Just a thought - if possible, instruct the Bank to deduct TDS from your SB account instead of deducting from the accrued interest so that one will get the full interest amount at the time of maturity.

Sir thanks for replying. The figures in the example are hypothetical figures to make the case understandable and simple. The fds belong to a senior citizen with only source of income being fd interest. AFAIK the maturity value should be, Principal amount + Interest – TDS amount but like I said the bank is willing to give in mail that the amount deducted as tds in q3 and q4 respectively won’t be counted under compounding benefits. As per them as interest of fds is cumulative so tds deducted in q3 and q4 wont get any interest and hence the maturity value will be lower then the value which is mentioned in the printed FD certificate given by them at the time of FD booking. As per them maturity value is, Principal amount + Interest – TDS amount- No compounding interest on TDS deducted. Just want to know are they right here? Do all banks follow similar way of calculations if there is TDS? Can we trust their system’s calculations here or should one do the calculations manually to check if the maturity value given by them is right or wrong?

Is there any notification by RBI about this? Notification or something which says that tds deducted amount will not be given interest?

And lastly last year if form 15g/15h were submitted then no tds was to be deducted for non senior citizens till 2.5 lacs interest and till 3 lacs for senior citizens. Have they changed this amount this year?

Para 4 of this circular is especially relevant to this discussion.

In a cumulative FD, the final maturity amount mentioned on the FD is on the assumption that interest on interest will continue to get accrued without any interruption till maturity but for the sake of TDS if some interest amount is to be deducted, then there is no question of paying interest on the interest deducted towards TDS. Only submission of form 15G or spreading FD across multiple banks so that annual interest will not exceed 50K in each bank will help avoiding TDS.

@tax007, On the contrary, as per this enclosed article from ET, SBI and HDFC are allowing investors to deduct TDS from linked SB account. This was in 2023. Others also would have followed suit by now.

Thank you so much sir for all the links. Unfortunately besides sbi and hdfc, most other banks are not giving an option in the net banking to link savings account for the deduction of the TDS. Still will tell the senior citizen to ask their SFB if they allow it or not. Final questions-

If form 15g/15h are submitted then no tds is to be deducted for non senior citizens till 2.5 lacs interest and till 3 lacs for senior citizens. Have they changed this amount this year?

My known senior citizen for whom I am asking these queries, had mutliple fd’s. Now what the bank has done is they did not deduct TDS from few fd’s but deducted more tds from the remaining fd’s. The total TDS deducted is 10% of the interest credited + interest accrued amount. It is just that for few fd’s the TDS deducted is NIL, whereas for the others they have deducted like 15-20% to match the total tds deduction. Can this lead to additional loss of interest or something for the accountholder?

Continuing the above point, we want to calculate the Loss due to non-compounding of TDS on all the fd’s. What information should we ask from the bank to calculate that manually and how exactly to calculate that?

@tax007, my view on your last point - Add the final (actual) maturity amount and the total TDS deducted till date towards interest on this FD and from that deduct the initial FD investment amount. That is the total interest you have received in this FD. Now the difference between this interest and the expected interest based on the original maturity figure mentioned in the FD is your loss of interest due to TDS.

This is exactly the question sir. How to find out/calculate that the loss of interest amount calculated by them is right or not? Not challenging the bank but like I said for some fd’s they have deducted nil tds while to make up for this they have deducted so much from the rest so just want to confirm the same.

I agree. If FDs of different interest rates are there and the Bank is deducting TDS of all these FDs from one single FD (an extreme case for just an example) that gives the highest rate of interest, then the loss of interest due to TDS will be higher than required.
Probably you may prepare an Excel sheet and calculate the interest that are accrued every quarter, TDS deducted in that quarter and the actual interest accrued in the next quarter etc to find out the actual loss of interest due to TDS. I don’t see any other easy method.

Thank you sir. Even if the interest rate is same across all fd’s the issue is with the number of days. Would the different fd starting rates and principal amount make a difference in loss of compounding interest on tds deducted amount?

The terms and conditions mention on the fdr has this point

Have they increased the limit for 15g and 15h from 2.5 lacs and 3 lacs to 3 lacs and 7 lacs respectively? I am not able to find any notification about this on the internet.

“Even if the interest rate is same across all fd’s the issue is with the number of days. Would the different fd starting rates and principal amount make a difference in loss of compounding interest on tds deducted amount?” - I don’t think the FD amount and starting date will have any impact on the loss of interest due to TDS. Only the rate of interest will affect this number.

Thank you so muchh sir. Any idea about the threshold limit till which no tds is deducted if from 15g/h is given? It used to be 2.5 lacs for non senior citizens and 3 lacs for senior citizens but now the fdr receipt says this

I asked hdfc bank, they were also not sure but did say that till 7 lacs there is no tax. I think they were confusing it with the new tax regime. Did the government release any notification regarding this?