Complete Rules Guide for Tax Calculation on Fixed Deposits
Fixed deposits have tax-saving benefits under section 80C of the Income Tax Act. This section allows for deductions up to Rs. 1.5 lakh from your taxable income. A fixed deposit is basically a way of earning interest on your depicted funds. This interest that you , however, is fully taxable. In this guide, we’ll help you understand the rules that come into play when calculating interest on fixed deposit interest.
How is FD Interest Taxed?
The interest that you earn on your fixed deposits is fully taxable. Whatever interest amount you earn has to be added to your total income, then according to your slab rate you’ll have to pay the tax. In your Income Tax filing, income interest from fixed deposits is filed under ’Income from other sources’.
TDS on Fixed Deposit Interest
Tax Deducted at Source, or TDS, is also applicable on fixed deposit interest. The basic concept of TDS is that when you’re receiving payments in certain situations, the payer is responsible for deducting tax before paying you and depositing the same with the government. Banks deduct TDS when crediting interest to your account every year in case the interest is more than Rs. 40,000 for individuals and Rs. 50,000 for senior citizens.
Calculating and Paying Tax on Interest Income
– To include interest income in your tax liability, you have to add your interest income to your total income under ‘Income from other sources’ when filing your tax returns.
– Any TDS deduction also has to be reported during IT filing. If your total tax liability is lower than what you’re already paid as TDS then that amount will be refunded back to you after filing.
– If you have a tax liability after adding interest income to your total income, then the same must be paid by 31st March of the financial year.
– However, if your tax liability after adding your interest income is Rs. 10,000 or more, then you’re liable to pay Advance Tax.
There are certain conditions that are applicable when banks deduct TDS from your interest. Let us look at a few situations with regards to TDS on Fixed Deposits.
When does the bank NOT deduct TDS?
If the interest earned from all Fixed Deposits is less than Rs. 40,000 in a year, then the bank cannot deduct TDS. This limit is Rs. 50,000 for senior citizens.
When does the bank deduct 10% as TDS?
If your interest income in a year is Rs. 40,000 or more(Rs. 50,000 for senior citizens), then the bank deducts TDS at 10%.
When does the bank deduct TDS at 20%?
If you do not provide your PAN details to the bank, they will charge TDS at 20%.
When your overall income is less than 2.5 lakh per year
In case your overall income is less than the minimum slab rate, then you are not required to pay any tax or TDS. In case the TDS is already deducted by the bank, you’ll get a refund of the same when you file your returns. However, you can make sure that no TDS is deducted in the first place by the bank by submitting Form 15G or 15H.
In this way, you can calculate and pay tax on interest income earned on your fixed deposits. You can also easily find out how much income tax you’re required to pay using a tax calculator available online. Ensure timely payment of liable tax and form 15G or 15H submission (wherever applicable) to avoid hassles.