Decoding the Tax Implications of Fixed Deposits in India

Fixed deposits (FDs) are a go-to investment option for many Indians, offering assured returns and low risks. However, it’s essential to understand the tax implications of FDs to make informed decisions and optimize your returns. In this article, we’ll dive into the world of FD tax, exploring key aspects like taxability of interest income, TDS, tax-saving FDs, and more. By the end, you’ll have a clear understanding of how taxes impact your FD investments and how to navigate them effectively.

Understanding the Taxability of FD Interest Income

How is FD Interest Taxed?

When you earn interest from your FDs, it is considered part of your total taxable income under the “Income from Other Sources” category. This means that the interest income is added to your other sources of income, such as salary or business income, and taxed according to your applicable income tax slab.

For example, let’s say you have an FD of ₹5 lakh, earning an interest rate of 6% per annum. The annual interest income would be ₹30,000. If your total taxable income, including this interest, falls in the 20% tax slab, you’ll need to pay ₹6,000 (20% of ₹30,000) as tax on your FD interest.

Tax Deducted at Source on FD Interest

What is TDS on FD Interest?

Banks deduct Tax Deducted at Source (TDS) on the interest earned from FDs if it exceeds certain thresholds. For non-senior citizens, TDS is applicable if the interest income exceeds ₹40,000 in a financial year. For senior citizens (aged 60 years and above), the threshold is higher at ₹50,000.

The TDS rate is typically 10% if you have provided your Permanent Account Number (PAN) to the bank. If you haven’t furnished your PAN, the TDS rate goes up to 20%.

Avoiding TDS With Forms 15G and 15H

If your total income is below the taxable limit, you can avoid TDS on your FD interest by submitting Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your bank. These forms are a declaration that your income is not taxable, and the bank should not deduct TDS.

For instance, if you’re a non-senior citizen with a total income of ₹2.5 lakh, which is below the taxable limit, you can submit Form 15G to avoid TDS on your FD interest.

Advance Tax Liability on FD Interest

When is Advance Tax Applicable?

If your total tax liability, including taxes on your FD interest income, exceeds ₹10,000 in a financial year, you are required to pay Advance Tax. Advance Tax is paid in instalments before the end of the financial year.

Let’s understand this with an example. Suppose your total taxable income, including FD interest, is ₹8 lakh for the financial year. Your tax liability would be approximately ₹60,000. Since this exceeds the ₹10,000 threshold, you’ll need to pay Advance Tax in instalments as per the due dates set by the Income Tax Department.

Tax-Saving Fixed Deposits

What are Tax-Saving FDs?

Tax-saving fixed deposits, also known as 5-year FDs, come with a lock-in period of five years. During this period, you cannot withdraw the funds prematurely. Investments in tax-saving FDs qualify for tax deduction under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per financial year.

Here’s a table comparing regular FDs and tax-saving FDs:

Claiming Tax Benefits on Tax-Saving FDs

To claim the tax deduction on your tax-saving FD, you need to invest in the FD in your own name. In the case of joint accounts, only the primary account holder can claim the tax benefit. The maximum deduction allowed is ₹1.5 lakh per financial year, which includes other eligible investments under Section 80C like PPF, ELSS, and NSC.

Example: If you invest ₹1 lakh in a tax-saving FD and ₹50,000 in ELSS, you can claim a total deduction of ₹1.5 lakh under Section 80C, effectively reducing your taxable income.

Making the Most of Fixed Deposits With Airtel Finance

Airtel Finance offers a range of FD options to suit your investment needs. With competitive interest rates, an easy online application process, and transparent terms, Airtel Finance makes FD investing simple and convenient.

Here are some key features of Airtel Finance FDs:

• Attractive interest rates of Airtel Finance’s FD plans up to 9.5% p.a.

• Flexible tenures ranging from 12 months to 60 months

• Option to invest in tax-saving FDs for tax benefits under Section 80C

• Loan against FD facility to meet unforeseen financial needs

• Online FD calculator to estimate your returns

• Minimal documentation for hassle-free investing

By understanding the tax implications of FDs and making informed investment decisions, you can maximize your returns and achieve your financial goals. With Airtel Finance, you can invest in FDs conveniently and securely, while also availing tax benefits where applicable. Start your FD investment journey with Airtel Finance today and let your money work harder for you.

FAQs:

1. How much amount of FD is tax-free?
   Interest earned from fixed deposits up to ₹40,000 (for non-senior citizens) or ₹50,000 (for senior citizens) in a financial year is tax-free.

    

2. How is tax calculated on fixed deposits?
   The interest earned from FDs is added to your total taxable income and taxed as per your applicable income tax slab.

    

3. Is FD taxable on maturity?
   Yes, the interest earned on FDs is taxable in the year it is credited or paid, even if the FD has not matured.

    

4. How is TDS calculated on an FD?
   TDS is calculated at 10% (with PAN) or 20% (without PAN) on the interest earned from FDs exceeding ₹40,000 (non-senior citizens) or ₹50,000 (senior citizens) in a financial year.

    

5. What is the exemption limit for TDS deduction on an FD?
   The exemption limit for TDS deduction on FD interest is ₹40,000 for non-senior citizens and ₹50,000 for senior citizens in a financial year.

    

6. How to avail TDS waiver on an FD?
   To avail of a TDS waiver on FD interest, submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your bank, declaring that your income is below the taxable limit.

    

7. Let’s understand the TDS on FD with the help of an example.
   Rahul, aged 35, has an FD of ₹6 lakh, earning 6% interest p.a. His annual interest income is ₹36,000, which is below the ₹40,000 threshold. Hence, no TDS will be deducted.