Fixed deposit Interest Income: All about Paying Tax on it

Fixed deposits allow you to reap guaranteed, high returns based on the issuer you choose. However, as is the case with most investments, there are certain taxation rules and deductions that come along with them. Understanding these will help you know what your net gains are, and how much of what you earn as interest you’ll be able to hold on to.

So, take a look at all you need to know about any tax implications on your fixed deposit.

How is FD interest income taxed?

Just like other incomes, the interest from fixed deposits is added to your annual income and you are then taxed based on the tax slab you fall under. For this purpose, you must declare your Fixed Deposit interest income under the head ‘Income From Other Sources’. Note that until now, banks and post offices used to deduct TDS if your FD interest income exceeded Rs.10,000 in a financial year. However, with the Interim Budget 2019, this threshold has now increased to Rs.40,000 for regular investors. The TDS rate is 10% if you have submitted your PAN details and 20% in case you haven’t. On the other hand, company FDs have a TDS exemption limit of up to Rs.5,000 that hasn’t seen any recent increase.

Your tax liability is adjusted with the TDS details when you file your ITR. Remember that TDS is deducted on interest that is accrued each year and not just on maturity. This means your 4-year FD is eligible for TDS deductions based on the interest accrued during each of the 4 years and not just in the 4^th year.

Here are two instances of how your FD income is taxed.

When your income exceeds the exemption limit

To understand this calculation, assume that you’re an individual taxpayer falling under the 30% tax bracket. Your income from all sources including FD interest is taxable, less deductions, and issuers deduct TDS at 10% on FD interest income. To understand this better, assume that your FD gives you interest income of Rs.50,000 in a year. So:

Total taxable FD interest income = Rs.50,000

As per your tax slab, you have to pay 30% of Rs.50,000 = Rs.15,000

Less: TDS already paid = Rs.5,000 (10% of Rs.50,000)

Balance tax payable on FD interest income = Rs.10,000 (Rs.15,000-Rs.5,000)

When your income is within the exemption limits

If your total income, including your FD income, falls within the exemption limits of a financial year, you can claim a tax refund or request your bank to not deduct TDS by submitting Form 15G. If you are a senior citizen, you have to submit Form 15H instead.

Now that you know how FD interest income is taxed, you can plan your investments efficiently and work on saving taxes. To enjoy higher returns, remember to apply for a Fixed Deposit with reputed issuers like Bajaj Finance. Here, you can benefit from a fixed deposit interest rate of up to 8.75% as a regular investor and up to 9.10% as a senior citizen on a 36-month FD. Further, you earn additional interest of 0.25% when you renew your FD.

Use the Fixed Deposit interest calculator to forecast your returns, choose the right tenor and payout frequency, and plan your finances in a better way. You can consider laddering your FDs and aligning them to various goals and enjoy liquidity in times of need.