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How is Income Tax on Fixed Deposit Calculated?
Posted on Monday, January 16th, 2023 | By IndusInd Bank
Income from Fixed Deposit (FD) interest is taxable in India. Invest in IndusInd Bank’s tax-saving FD to save on taxes while enjoying an attractive rate of interest.
Fixed deposits (FDs) have always been looked upon as a reliable source of investment in India. That explains why, despite the existence of a large number of instruments of investment, FDs continue to enjoy unrivalled popularity among people of all ages and income groups. But while most people are aware of the guaranteed returns and rates of interest associated with an FD, some confusion does prevail over the tax laws with regard to FDs in the country. Here is the complete lowdown on income tax and fixed deposits in India.
10 Critical Facts about Income Tax on Fixed Deposits
- The interest amount earned on your Fixed Deposits is taxable under the head of ‘Income from Other Sources’
- If the interest on the FD is less than INR 40,000, the income is exempt from Tax Deducted at Source (TDS)
- If the interest income on your FD exceeds INR 40,000 – INR 50,000 for senior citizens – PAN card users would have to pay 10% as tax on interest earned and non-PAN users would need to pay 20% as tax
- For non-resident Indians, the TDS rate is 30% on interest earned on FDs
- Tax on the FD interest is deducted as TDS when the annual interest is credited; in other words, the bank will automatically levy TDS on the interest earned on your FD.
- Tax on FDs also depends on the income of a taxpaying individual for that year
- If you have a total income amounting to INR 10 lakhs or more per annum, the FD interest will be taxable at 30%
- There is no tax on Fixed Deposit if your overall income is less than INR 2.5 lakh in a year minimum taxable amount
- In order to claim eligibility for tax exemption, you have to submit form 15H for senior citizens or 15G for regular citizens
10) In order to avoid paying tax, you could opt for a tax-saving FD which comes with a lock-in period of 5 years. This will enable you to claim a deduction up to INR 1.5 lakh under Section 80C of the Income Tax Act
EXAMPLE: Miss Ahuja has 2 FD Accounts with 2 different banks. While Bank X fetches an interest earning of INR 50, 000 per annum, Bank Z yields INR 20, 000 per annum.
Now, Miss Ahuja is liable to pay 10% TDS, as her interest earnings exceed INR 40,000 in a year. But the tax department doesn’t take the aggregate interest earnings from all the banks into account. TDS on the interest amount will only be applicable to the earnings from Bank X. For the other account, Miss Ahuja will get a Fixed Deposit income tax exemption.
Choose IndusInd Bank Fixed Deposits
IndusInd Bank’s secure tax-saving FDs enable you to significantly minimise your tax liability, while enjoying an attractive rate of interest. The key features of an IndusInd FD are as follows:
- Attractive rate of interest
- Smooth & instant booking process
- Flexible tenures
- Multiple options for interest pay-outs – monthly, quarterly, half-yearly, yearly, or at maturity
If you are unsure of how much you would earn through an FD, you could always take the help of IndusInd Bank’s Fixed Deposit calculator. Using the FD calculator is fairly straightforward. All you have to do is enter your investment amount and the desired tenure of the FD in years and months. The maturity amount and maturity date will be promptly displayed. There’s also the FD interest rates calculator which allows you to find out the interest you would earn on the basis of your investment amount, tenure, and prevailing rate of interest.
For better growth and savings, apply for an IndusInd Bank FD today!
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
