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Want to know how your FDs are taxed?

FDs are eligible for TDS and it is taxed according to the tax slab.   

Fixed deposits are one of the most convenient and easiest ways to park your surplus cash. Because of the fixed rate of interest and capital safety, it is the most common and preferred saving option. While we know their features, many young savers are not aware of the taxation of the gains from fixed deposits.   

As per Interim Budget 2019, Tax Deducted at Source (TDS) exemptions has increased to Rs. 40,000 on bank deposits. Additionally, senior citizens can get a tax exemption up to Rs. 50,000 on fixed deposits.

Here are some of the various facets of taxation of FDs:

Taxed at slab rate

This tax is deducted at source by the bank at the time they credit the interest to your account and not when the FD matures. If the interest earned by your fixed deposit in one financial year exceeds Rs.40,000, then a TDS  of 10% will be applicable. If the PAN is not linked to the account, TDS of 20% will be cut.

Once the TDS is cut, the remaining interest will fall under head ‘income from other sources’ in your income tax return and will be taxed at the same rate as per your gross income. This means that the taxation can vary from 10% to 30%. E.g., if you fall under the 30% tax bracket, then you have to pay 30% tax on the interest earned from FD. If you don’t fall in the tax bracket and TDS has been cut, you can file for tax returns. We will talk about this in a short while. It is important to declare your fixed deposits, if you don’t want to receive a notice from tax men.

If you don’t fall in the tax bracket

If your interest earned is more than Rs.40,000 and you don’t fall in the tax bracket, you can furnish forms 15G or 15H for a nil or lower deduction of TDS.  Form 15G is for individuals below 60 years. On the other hand, senior citizens can submit 15H. It is to be noted that the forms should be submitted before the start of the financial year. In this case, the TDS won’t be cut. If you don’t fill these forms, you can claim the tax refund in your income tax return.  FD calculators have made it easier to know how much interest you will receive and plan accordingly.    

For senior citizens

Senior citizens can avail tax deductions of up to Rs.50,000 in one financial year under section 80TTB of the act. The previous limit was Rs.10,000 irrespective of the age of the FD customer.

Tax rate for NRIs

In case of non-residents, TDS on interest income is deductible at 30% plus additional surcharge and cess.

Tax saving through fixed deposits

One can also save tax by opening tax saving FD. It helps to deduct tax up to Rs.1.5 lakh in a financial year. However, one should note that the lock-in period of these fixed deposits is five years.   

These were some of the nuances of fixed deposit. Many people have fixed deposits but are not aware of the taxation angle and may land in trouble. It is always to be prepared than be sorry.

Fixed deposits can also help you to save tax. Now that you have a clear understanding of how FDs are taxed and how you can avail tax benefits, go ahead and open a fixed deposit.

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