Tax Deducted at Source is a mechanism in which whoever pays you income deducts tax before making the payment and deposits it with the government against your PAN. Your employer deducts it from salary; banks deduct it from interest above a threshold; fund houses deduct it from certain distributions. The amount appears in your annual tax statement and counts towards your final tax.
Why it matters
TDS is not an extra tax — it is an advance payment of your tax. But it affects cash flow. If your total income is below the taxable limit, or your actual tax is lower than the TDS, you claim a refund when you file your return. If your slab rate is higher than the TDS rate, you will owe more.
How to read it
- Thresholds. For bank deposit interest, under current rules TDS applies once interest at a bank exceeds ₹50,000 in a year (₹1,00,000 for senior citizens), as revised from 1 April 2025.
- Rate. TDS on deposit interest is typically 10% when your PAN is on record, and higher without it.
- Self-declaration. Eligible individuals whose total income is below the taxable limit can give the payer a declaration so tax is not deducted.
- Annual statement. Match the TDS credited to your PAN with your own records before filing.
Common misconceptions
- “TDS deducted means my tax is done.” Your actual liability depends on total income and slab; you may owe more or be due a refund.
- “No TDS means no tax.” Interest below the TDS threshold is still taxable income.
In India: From 1 April 2026, TDS provisions sit in the Income-tax Act, 2025, with renumbered sections and forms. Thresholds and rates can change; check the latest provisions.
Worked example
For illustration, assume a depositor under 60 earns ₹60,000 of interest in a year at one bank and has given the bank their PAN. The bank deducts 10% TDS, ₹6,000. If the depositor is in the 30% slab, about ₹12,000 more is due on that interest when filing, ignoring cess.
Figures are for illustration only — not a forecast or a recommendation.
Related terms
Fixed deposit
A deposit with a bank or finance company that earns a fixed interest rate for a chosen term, with principal and interest due at maturity.
Non-cumulative FD
A fixed deposit that pays interest out at regular intervals — monthly, quarterly, half-yearly or yearly — and returns the principal at maturity.
IDCW
Income Distribution cum Capital Withdrawal
A mutual fund option that pays out distributions from time to time; payouts can include part of your own capital, not just income.
Capital gains
The profit made when you sell or redeem an investment for more than it cost; taxed as short- or long-term depending on how long you held it.