Tax laws for TDS on Fixed Deposit and way to defer tax until end of fiscal year.

Fixed deposit is one of the many alternatives and safe way to earn passive income. You can earn higher interest rate than regular saving account. Interest is also considered a source of income and so governed by tax laws of India.

When do the banks deduct TDS on a fixed deposit?
If the total interest earned on all your fixed deposits in a bank is greater than Rs. 10,000 in a financial year, you are liable for TDS and the banks will deduct the income tax at source. The tax liability for the purpose of TDS is determined at the branch level. Even if a fixed deposit is in the name of a minor it will attract TDS and in this case the credit for TDS can be claimed by a person managing the minor's income. Whenever the bank pays an interest on your fixed deposits, it checks it for TDS eligibility. If it qualifies, the TDS is deducted. TDS is also deducted on interest accrued (but not yet paid) at the end of the financial year viz. 31st March every year.
The rate at which TDS is deducted varies according to the category of account holders.

TDS rates for a fixed deposit held by resident individual and HUF
If the fixed deposit holder is a resident individual and HUF, for a payment of up to 10 lacs, TDS will be deducted at a rate of 10% in addition to it there is an education cess of 3% which takes the total deduction to 10.3%. For a fixed deposit of resident individual or HUF with payments equal to 10 lacs or more the TDS rate is 10%, in addition to it there is a surcharge of 10% and educational cess of 3% this takes the total deduction to 11.3%

How does change in FD portfolio affect on TDS?
Any change or enhancement in fixed deposit portfolio affects the TDS liability. If your changed portfolio earns a interest which falls under limit of income tax laws, you will be liable for TDS on your current FD portfolio. In case the interest on your current portfolio is not sufficient enough to cover the TDS, it will be deducted from the principal amount.

For any TDS deducted by the bank, it will issue a Form 16A which can be used to substantiate the facts, while filing the income tax returns.
Remember, that any exemptions claimed don't help you save tax, since in your final Income Tax Return you would end up paying the tax with possibly interest penalties.

What if I don't have my PAN registred with bank?
effective from 01/04/2010, Bank will deduct 20% of your interest on your FDs. so if you don't have PAN quckly apply for one and register it with bank so you can defer TDS until end of year.

So what you can do so Bank does not deduct TDS? Well divide your FDs in such a way that interest from FDs does not go more than Rs.10000. so distribute amount in 3-4 banks. But still you will have to show interest as part of income in when you file for income tax retun after end of fiscal year. so thsi way you can delay tax on interest from FD but can not exempt from it.