How are Fixed Deposits taxed? Here’s Everything You need to Know!

Fixed deposits have been the favourite go-to investment instrument for many in India. They continue to occupy a pride of place in many Indian homes because of their safety and stability apart from fixed earnings. Invest in FD with companies like Bajaj Finance to yield benefits of high interest rates and flexible tenors.

Before investing however, it is essential for you to understand that the income from fixed deposits is subject to taxation. Learn how tax applies on your fixed deposits, so that you can structure your wealth-building portfolio better and generate maximum yield from your investment.

When do you have to pay tax on your FD?

When the interest on your deposited amount crosses Rs. 10,000 you need to pay tax according to your tax slab. If you have invested in a bank FD, banks deduct tax at source at 10% of the amount exceeding the cap of Rs. 10,000 on interest earnings.

The same is 20%, if you fail to submit your PAN card information to your bank. Due to the recent Union Budget announcement, 2018, for senior citizens, FD income is taxed only once it crosses Rs. 50,000.

You will also need to declare the FD income in your IT returns. Say, you have a fixed deposit of Rs.10 lakh fetching 7% annual interest, which amounts to Rs. 70,000. Bank deducts Rs. 7000 TDS on the interest. This TDS amount is then deducted from the tax you are liable to pay according to your gross income. Suppose as per your tax slab you fall into the 30% tax bracket. Then the total tax payable for you is Rs. 21,000 on an income of Rs. 70,000. But, with TDS already deducted, you finally pay Rs.14000 (21,000 – 7000).

When it comes to company FDs, tax will not be deducted at source. You will need to declare the interest earnings exceeding Rs. 5,000 per financial year and pay tax according to your bracket.

However, no TDS gets deducted when your total income, including the interest income, is less than the minimum taxable amount.

How can tax-saver fixed deposit reduce your liabilities?

The same taxation treatment applies to tax-saving fixed deposits as in case of normal fixed deposits. The only advantage these give you is that you can claim the initial deposited amount as a deduction under Section 80C of the Income Tax Act.

How to understand your income tax rates as per slab?

The higher your income, the higher is your tax slab. The income you generate by investing in fixed deposits gets added to your total income and taxed accordingly under the section ‘Income from other sources’ in your IT return. With varying income and tax slabs, the percentage of deduction varies through 10% to 30%.

How to check your Form 15G/15H eligibility?

If you belong to the categories of semi-skilled workers, housewives, and retirees and your total income adds up to less than the minimum exempt income i.e., it falls below the Rs.2,50,000 tax slab mark, then you are not expected to pay any tax. To alert the bank, you will have to submit an income proof alongside Form 15G/H.

Form 15G is applicable for you if you are below 60 years of age and 15H is what senior citizens need to submit to get this tax benefit on income from FDs. For those who have invested in company FDs, you can submit these forms alongside your IT returns.