TDS — Tax Deducted at Source
Also written TDS · Tax Deducted at Source
Tax the bank deducts before crediting certain interest to you — absent on savings bank interest but charged on fixed and recurring deposit interest beyond a stipulated amount the workbook does not state.
In plain language
TDS stands for Tax Deducted at Source. Instead of paying your tax bill at the end of the year, the payer deducts a slice of tax before the money even reaches you.
The workbook applies this idea to bank deposits, and it draws a clear line. Interest on a savings bank account attracts no TDS — though the interest is still taxable in your hands when you file your return. Interest on a Fixed Deposit or a Recurring Deposit, though, is subject to TDS once it crosses a stipulated amount.
So the same word, interest, is treated two different ways in the same chapter, depending only on which product earned it.
How it works
The workbook's own contrast, product by product:
| Product | TDS on interest |
|---|---|
| Savings Bank (SB) Account | No TDS on interest, but the interest remains taxable in the depositor's hands |
| Fixed Deposit | TDS applies beyond a stipulated amount |
| Recurring Deposit | TDS applies beyond a stipulated amount |
The workbook does not print the rupee figure for that "stipulated amount" in this booklet, for either FD or RD interest. It states only that a threshold exists and that TDS applies once interest crosses it. Where the source gives no number, the honest position is to say so rather than borrow a figure from elsewhere.
TDS deducted is not a final tax. It is an advance credit against your total tax liability for the year, adjusted when you file your return.
A worked example
The TDS threshold is illustrative — the workbook gives no figure for it in this booklet.
Mohammed holds three accounts at the same bank: a savings account earning Rs 3,200 in interest, a fixed deposit earning Rs 62,000 in interest, and a recurring deposit earning Rs 8,500 in interest, all in the same financial year.
On the savings account interest, the bank deducts nothing at source — but Mohammed must still declare the Rs 3,200 as taxable income when he files his return. On the fixed deposit and recurring deposit interest, the bank checks whether each amount crosses its stipulated threshold; if it does, the bank deducts TDS before crediting the interest to his account, and issues him a certificate showing what was deducted.
At return-filing time, Mohammed adds all three interest amounts to his total income and claims credit for whatever TDS the bank already deducted — the TDS is an advance payment, not a separate, final tax.
Why NISM asks about it
Chapter 4 (Savings Related Products) states the TDS rule separately for the Savings Bank Account, the Fixed Deposit and the Recurring Deposit, in its comparison table of deposit types. Expect a question asking which deposit type has no TDS on interest — the savings bank account — and which types attract TDS beyond a stipulated amount — FD and RD.
Common exam traps
- No TDS on savings account interest does not mean the interest is tax-free. It is still taxable income; only the deduction-at-source step is skipped.
- FD and RD interest both attract TDS beyond a stipulated amount — the workbook treats them identically on this point, unlike on tenure and rate, which it says vary bank to bank.
- The workbook gives no rupee threshold for TDS on FD or RD interest in this booklet. Do not answer with a figure the source does not state.
- TDS is an advance credit, not the final tax. The full interest is still added to total income at return-filing time, with the TDS already deducted set off against the tax due.
- Do not confuse TDS on deposit interest with the separate Section 80TTA deduction — one is deducted at source by the bank, the other is a deduction you claim yourself when filing your return, and only on savings-account interest.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Fixed DepositMoney placed with a bank for a fixed term at an agreed rate of interest. Safe and simple, but the interest is taxable, and TDS applies once interest crosses a stipulated amount.
- Recurring DepositA bank deposit where you put in a fixed amount every month for a set term. It earns more than a savings account, and TDS applies beyond a stipulated amount of interest.
- Savings Bank (SB) accountAn ordinary bank savings account paying low, liquid interest, with no TDS on the interest itself — distinct from the zero-balance Basic Savings Bank Deposit Account.
- Section 80TTAThe deduction against tax on savings bank interest, available only to an individual or HUF, and only for a savings account with a bank, post office or cooperative bank — not for fixed deposit interest.
- Withholding taxTax deducted from income at the point it is paid or credited — for an AIF, 10% on income distributed to a resident investor and 20% where a non-resident is paid dividend.
- Telegraphic Transfer buying rateThe State Bank of India's telegraphic transfer buying rate for a foreign currency — the rate the Income Tax rules use to convert foreign-currency capital gains and income from securities into rupees.
- Income from other sourcesThe head of income under which interest and dividends earned in a PMS are taxed, at the investor's slab rate — with no indexation or capital gains benefit.