Fixed Deposit is one of the most common and trustworthy investment tools in India. A fixed deposit account is easy to open and your funds are safe as the money does not dapple in the market. However, they are not tax saving investments.
You can save your FDs from taxes by deducting up to Rs.1.5 Lakh from your taxable income under Section 80C. But when it comes to the interest you earn on FDs, it is fully taxable.
You are supposed to report the income you get as interest from fixed deposits under the ‘Income from Other Sources’ while filing your Income Tax. You have to add it to your total income and pay taxes according to the tax slab that applies to your income.
TDS stands for Tax Deducted at Source and it has been implemented by the Income Tax Department to collect taxes during certain transactions. TDS is applicable on salaries, professional fee, and also interest from FD, among other incomes.
As TDS stands for tax deducted at source, you need to note that it is deducted when the bank pays the interest. It is not deducted when the FD matures.
The deducted tax can be adjusted as per your total tax liability when you file your Income Tax Returns.
For example, if you have an FD for 5 years, and the bank pays your interest yearly, TDS will be deducted at the end of each year. It has nothing to do with the maturity date of the fixed deposit.
Your income tax liability depends on your total income. If your total income is taxable, you need to pay a 10% TDS if your fixed deposit interest exceeds Rs.40,000. If you are a senior citizen, this amount will be Rs.50,000.
Please note that the income tax department doesn't consider your total interest earnings from all the banks. Only FDs held in the same bank are calculated cumulatively. Separate bank FDs are treated as separate accounts.
If one of your bank’s FDs exceeds Rs.40,000 and the others don’t, you have to pay TDs only on the one that exceeds. For the other FDs, you can claim your amount back while filing your Income Tax Returns.
In case your income is below the taxable limit, the TDS deducted on your FD interest can be waived off. For that, you will have to submit Form 15G or 15H to your bank. For citizens under 60 years, Form 15G is to be submitted, and for senior citizens, Form 15H.
These forms act as a self-declaration that TDS should not be applied on FD interest as your income is below the basic exemption limit. Once you submit the form, you can receive your full FD interest without any tax deductions.
Fixed deposits are safe investment options but they are not tax-free. The interest you earn on your FDs is taxable under ‘Income from Other Sources’.
TDS is deducted when the bank deposits the interest in your account. You can claim a refund while filing your Income Tax Return if your income is not in the taxable slab.
Interest earned up to Rs.40,000 for the general public and up to Rs.50,000 for senior citizens is TDS free.
Yes, it can be refunded. If your TDS surpasses your tax liability, it will be refunded to you when you file your Income Tax Return.
Several banks have tax-saver FDs which allow you to save up to Rs.1.5 Lakh each financial year, under Section 80C. But even for these FDs, the interest amount received will be taxable according to your tax slab.
TDS depends on the income of the individual and ranges from 10% to 30%.
In case your income is below the taxable limit, you have to submit Form 15G (for citizens under 60 years) or Form 15G (for senior citizens) for the TDS on your FD interest to be waived off.
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