Fixed deposits, an assured investment option, allow you to benefit from attractive FD rates, especially at present. No wonder then that they are the desired investment option for investors across all age groups and risk capacities. Based on the issuer you choose and the rate of interest they offer, you can earn moderate to high returns. So, it is important to shop around for issuers offering high FD interest rates and other useful features.
Remember that your income from a fixed deposit is taxable as it is considered ‘income from other sources’ as per the IT Act. However, a tax saving FD, which has a lock-in period of 5 years, offers certain tax breaks. Your deposit amount in such FDs can be claimed as a tax deduction under Section 80C of the Income Tax Act.
Knowing how your fixed deposit income is taxed will help you declare your FD interest income accurately and file your ITR accordingly. So, take a look at the detail below.
How are FDs taxed?
The interest income earned from your FD investment is fully taxable. Your FD interest income is added to your annual taxable income and then taxed based on your applicable tax slab. You must declare your FD interest earnings under the head of ‘Income From Other Sources’. However, issuers are liable to deduct TDS on your FD interest income if it crosses Rs.10,000. The threshold is Rs.50,000 for senior citizens. The Interim Budget of 2019 has proposed to increase the threshold to Rs.40,000 for investors other than senior citizens. In the case of company deposits, the interest income threshold for TDS is above Rs.5,000 a year.
Remember that TDS is deducted on your FD income at the rate of 10% if you have submitted your PAN details to the issuer and 20% if you haven’t. Next, at the time of filing ITR, your income tax liability is adjusted with the TDS, so you only pay the balance. TDS is deducted on an accrual basis. As such, the FD interest attracts TDS each year and not just on maturity.
Now take a closer look at how your FD interest income is taxed under two scenarios.
When your income exceeds the exemption limit
Say that you’re an individual taxpayer and fall under the 30% tax bracket. Assume that your total FD interest is Rs.1,00,000 for a year and that you have submitted your PAN details to the issuer. In this case, your FD interest income is taxed as follows:
Total taxable FD interest income = Rs.1,00,000
Tax payable as per your slab (30% of Rs.1,00,000) = Rs.30,000
Less: TDS already paid = Rs.10,000 (10% of Rs.1,00,000)
Balance tax payable on FD interest income = Rs.20,000 (Rs.30,000-Rs.10,000)
When your total income is within the exemption limits
If your total income including FD interest earnings falls below the taxable slab limits for that financial year, you can submit Form 15G avoid TDS to request the issuer not to cut TDS. Senior citizens need to submit Form 15H.
With a fair understanding of how your FD interest income is taxed, you can now start planning your investments and also work on saving taxes. Apply for Fixed Deposit with reputed issuers like Bajaj Finance to benefit from high FD rates of up to 8.75% as a regular investor and up to 9.10% as a senior citizen on a 36-month FD, payable at maturity. Additionally, earn 0.25% on your FD renewal!
Use the FD interest calculator to ladder your FDs and thus, plan your finances with ease. This also helps you in achieving various goals with adequate liquidity from time to time. Also, enjoy the highest ICRA and CRISIL safety ratings on your investments when you invest in a Bajaj Finance FD. Get started now with an easy online application.