Fixed deposits (FDs) have long been a popular financial option for people of all ages. FDs are a dependable asset that offers an assured return on investment in the form of interest.
You deposit money with a reputable bank for a set period and receive a larger sum back when it expires. Fixed deposits can be attributed to popularizing compounding interest among the general public.
In this article, we will explore if the interest on a fixed deposit is taxable and the tax benefits of an FD.
Yes. The interest generated on FDs is taxable.
Fixed deposit interest is fully taxable. If you file an income tax return, you must include this amount under "Income from Other Sources.".
FD interest is taxed at your slab rate plus any applicable surcharge/cess. Income tax slabs of that particular year determine the total tax on FDs.
Banks deduct TDS (Tax Deducted at Source) from interest income on Fixed Deposits (FD) before crediting it to depositors' accounts. This is usually deducted by the bank and deposited with the Income Tax Department on the due date.
The Income Tax Department has a system in place called Tax Deducted at Source (TDS) to collect taxes during specific transactions. A predetermined percentage of the payment is withheld by the payer under TDS and sent as tax to the government.
Salaries, professional fees, interest on fixed deposits (FDs), and other income are all subject to TDS deductions. When the payee files an income tax return, the amount that was deducted is credited to his or her income tax account and can be adjusted against the total amount owed in taxes.
The highest tax benefit that taxpayers with FD accounts can receive annually from their gross taxable income is Rs 1.5 lakh.
With fixed deposits (FDs), you can take full advantage of Section 80C's deduction of Rs 1.5 lakh from your taxable income. In addition to providing some interest returns, it also guarantees capital protection.
Senior citizens, on the other hand, are eligible for a deduction under section 80C of the Income Tax Act on FD deposits as well as a deduction under section 80TTB of the Act on interest earned from FD up to Rs 50,000.
The tax due on the interest received from FDs must be paid by March 31st of that year. Paying any unpaid taxes by that date is imperative.
You must pay Advance Tax, though, if the total amount of taxes you owe, including interest income taxes, is Rs. 10,000 or more. This implies that you have until the end of the fiscal year to pay it all off at once.
To prevent any issues later on, you must pay your taxes on time.
It is possible to avoid paying TDS on fixed deposit interest, in the following cases.
Your total interest for the year from FDs does not exceed the TDS limits
FD interest rate is your only income
If you fall under either of the above cases, then you can avoid paying TDs on your FD interest. The first case does not require you to submit anything, while the second requires you to submit forms 15G & 15H.
15G/H is a declaration form used for declaring that interest from FDs is your only source of income in a financial year.
File 15G is for individuals below 60, while those above 60 should use file 15H.
Additionally, If your total income for a given fiscal year does not exceed the minimum taxable amount of ₹2,50,000, you will not be subject to tax consequences. The interest on FD will not be subject to TDS deduction.
Through Fixed Deposits (FDs), you can reduce your tax liability by up to Rs. 1.5 lakh in a financial year and take advantage of the benefits provided by Section 80C of the Indian Income Tax Act.
They guarantee the security of your capital in addition to offering interest returns. Interest income from FDs is taxable, and banks use Tax Deduction at Source (TDS) to account for this. Pay attention to the tax payment deadlines, and consider Advance Tax if your total taxes due exceed Rs.10,000.
Yes, all interest income from FDs is taxable. TDS is deducted only if interest income exceeds Rs 40,000 per year. Otherwise, no tax is deducted from fixed-deposit interest income.
Yes, income from interest on fixed deposits is taxable under income from other sources.
TDS will be deducted at a rate of 10% if the total interest earned for a financial year on FDs held with one bank branch exceeds the exemption limit of Rs. 40,000 for TDS deduction on FDs.
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