Navigating the world of taxes can be challenging, especially when it comes to something as important as your investments.
As an investor, you must be aware that Fixed Deposits (FDs) can be a great way to earn steady returns. But do you know about the tax implications that come with FD interest rates?
To clear the doubts on FD interest taxation, this article provides a comprehensive guide on how FD interest rate is taxed in India, including the available tax exemptions and deductions.
TDS on FD interest rate
Tax Deducted at Source, commonly referred to as TDS, is a tax collection method in India where the payer deducts a particular percentage of tax before making the payment to the recipient..
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This tax system ensures that taxes are deducted at the source of income, preventing tax evasion and ensuring a steady flow of tax revenue.
In the case of FD interest, the banks and financial institutions directly deduct TDS (at the specified rate) from the total FD interest earned in a particular financial year before crediting it to the depositor’s account.
TDS Rate on FD interest
- 10% with PAN
- 20% without PAN
Threshold limit for TDS on FD interest rate
- For individuals below 60 years of age: ₹40,000
- For individuals of or above 60 years of age (Senior Citizens): ₹50,000
This means that if the total FD interest earned by an individual other than senior citizens in a financial year is more than ₹40,000, then the bank will deduct TDS at the rate of 10% (if he provides the PAN) on the whole amount of interest earned.
However, if the total interest earned on FDs in a financial year is less than ₹40,000 (or ₹50,000 for senior citizens), no TDS is deducted.
For example- If an individual below 60 years of age earns FD interest of ₹60,000, then the amount of TDS deducted by the bank will be ₹6,000.
Income tax on FD interest
Interest earned from Fixed Deposits is considered fully taxable income. Therefore, when filing your Income Tax Return (ITR), you are required to report the FD interest rate income for the financial year in the return.
To do this, simply add the interest amount to your total income by putting it under the head “Income from Other Sources” and pay the resulting tax liability calculated as per the applicable tax slab.
Once you file the ITR, the Income Tax Department will automatically adjust the TDS that has already been deducted from your FD interest rate against your final tax liability.
Note: If your total income is not subject to tax, you can receive your Fixed Deposit interest without a TDS deduction. However, to avail of this benefit, you must submit Form 15G (for those under 60) or Form 15H (for those over 60) to your bank prior to the due date.
Wrapping Up
Now that you have a clear understanding of how FD interest rate is taxed in India, you are equipped to make smart FD investment choices that match your financial needs.
Just remember to consider those taxes when you are calculating your returns and do not forget to report FD interest in your tax return.
By doing so, you will be able to avoid unwanted penalties and make informed investment decisions. It will also help you make the most of your FD interest rates and step towards a secure and stable financial future.
