Fixed Deposits are a popular investment tool. These enable you to grow your wealth exponentially in the short and long run and ensure the safety of your hard-earned money. However, there is a crucial tax component to the interest income earned from the FDs that investors often overlook. You might be asking, is FD interest taxable? Well, the answer to this question is “Yes.” Since the FD return rate is quite lucrative, you must thoroughly understand how a tax on the interest income generated from FDs is calculated, when and how to pay the tax and how to open a Tax-Saving FD Rates. Continue reading this article to learn about these in detail. What is a Fixed Deposit? Fixed Deposits, popularly known as FDs, are a top-rated investment tool that promotes financial stability. FDs help you to invest a fixed amount of money at a pre-decided tenure and interest rate. Once matured, you reap the advantages of a lump sum in addition to the interest accrued on the invested amount. How is the Taxation of the Interest Income on the FD Done? The answer to your query is that FD is interest taxable – the interest accrued on an FD is taxable as per the appropriate tax rates set by the IT Act. ● If you are not a senior citizen and your interest income hits INR 40,000, or if you are a senior citizen and your interest income is worth INR 50,000 in a particular financial year, the bank will deduct 10% TDS. ● If you are an NRI, you are subjected to 30% TDS plus cess and applicable surcharge. Here, let’s consider an example. You have two FD accounts with two different banks. Bank A gives you an interest income of INR 60,000 p.a. Bank B gives you an interest amount of INR 10,000 p.a. In such a case, a 10% tax will be deducted only by Bank A, as the interest amount is higher than the limit. How to Calculate Tax on Interest Income? You can determine the tax on your FD income by following the following steps: Step 1: Under the heading “Income from Other Sources”, add up your total FD interest. Step 2: Now, add your remaining income under specific heads of income. Step 3: Deduct the exemptions, deductions and tax allowances. Step 4: Now, you can calculate your tax on total income by your applicable tax slab What is TDS? When you receive a payment, the entity or individual making the payment makes sure to withhold a certain tax amount before making the payment. The tax thus withheld is known as Tax Deducted at Source or TDS. For example, you were supposed to be paid INR 3,000. However, 15% tax was deducted, which amounts to INR 450. Thus, now you receive INR 2,550. The deducted amount of INR 450 is, in turn, paid by the entity or the person as their TDS obligation to the central government. Understanding TDS in Accordance to the FDs Now let us understand in detail TDS in accordance with the Fixed Deposits(FDs) Case 1: No TDS Deduction The bank does not charge TDS from the interest generated from your combined FDs with the concerned bank if it is lower than INR 40,000 in a particular year. For senior citizens of at least 60 years old, the margin is INR 50,000. Case 2: TDS is 10% If your interest income exceeds the margin of INR 40,000 or INR 50,000 (in the case of senior citizens), 10% TDS will be deducted. […]
How to pay Income Tax on Fixed Deposits’ Interest Income?
Fixed Deposits are a popular investment tool. These enable you to grow your wealth exponentially in the short and long run and ensure the safety of your hard-earned money. However, there is a crucial tax component to the interest income earned from the FDs that investors often overlook. You might be asking, is FD interest taxable? Well, the answer to this question is “Yes.” Since the FD return rate is quite lucrative, you must thoroughly understand how a tax on the interest income generated from FDs is calculated, when and how to pay the tax and how to open a Tax-Saving FD Account. Continue reading this article to learn about these in detail. What is a Fixed Deposit? Fixed Deposits, popularly known as FDs, are a top-rated investment tool that promotes financial stability. FDs help you to invest a fixed amount of money at a pre-decided tenure and interest rate. Once matured, you reap the advantages of a lump sum in addition to the interest accrued on the invested amount. How is the Taxation of the Interest Income on the FD Done? The answer to your query is that FD is interest taxable – the interest accrued on an FD is taxable as per the appropriate tax rates set by the IT Act. ● If you are not a senior citizen and your interest income hits INR 40,000, or if you are a senior citizen and your interest income is worth INR 50,000 in a particular financial year, the bank will deduct 10% TDS. ● If you are an NRI, you are subjected to 30% TDS plus cess and applicable surcharge. Here, let’s consider an example. You have two FD accounts with two different banks. Bank A gives you an interest income of INR 60,000 p.a. Bank B gives you an interest amount of INR 10,000 p.a. In such a case, a 10% tax will be deducted only by Bank A, as the interest amount is higher than the limit. How to Calculate Tax on Interest Income? You can determine the tax on your FD income by following the following steps: Step 1: Under the heading “Income from Other Sources”, add up your total FD interest. Step 2: Now, add your remaining income under specific heads of income. Step 3: Deduct the exemptions, deductions and tax allowances. Step 4: Now, you can calculate your tax on total income by your applicable tax slab What is TDS? When you receive a payment, the entity or individual making the payment makes sure to withhold a certain tax amount before making the payment. The tax thus withheld is known as Tax Deducted at Source or TDS. For example, you were supposed to be paid INR 3,000. However, 15% tax was deducted, which amounts to INR 450. Thus, now you receive INR 2,550. The deducted amount of INR 450 is, in turn, paid by the entity or the person as their TDS obligation to the central government. Understanding TDS in Accordance to the FDs Now let us understand in detail TDS in accordance with the Fixed Deposits(FDs) Case 1: No TDS Deduction The bank does not charge TDS from the interest generated from your combined FDs with the concerned bank if it is lower than INR 40,000 in a particular year. For senior citizens of at least 60 years old, the margin is INR 50,000. Case 2: TDS is 10% If your interest income exceeds the margin of INR 40,000 or INR 50,000 (in the case of senior citizens), 10% TDS will be deducted. […]