Just like your earnings apply to tax deductions, the interest you earn from making various investments is also applicable to tax deductions, also known as TDS on FD. It varies from instrument to instrument. Some financial tools are tax-saving havens, like the PPF and various life insurance policies. In contrast, some are taxed heavily based on the nature of earnings like income generated from the equity stock market. Before elaborating on how TDS on fixed deposit affects your fixed deposit investment earnings, here’s a quick summary of the basics.
What is a Fixed Deposit?
The fixed deposit is a fixed income generating instrument where you can park your savings and surplus income at a fixed rate of interest that is applicable throughout the tenure you choose. This interest rate is not based on market movements and is stable throughout the tenure, making this a very safe and low-risk appetite investment option, best for long-term financial goals. At maturity, the investor receives the principal amount and the accrued interest over the tenure. The interest earned by investing in Bajaj Finance Fixed Deposit is taxable.
What is TDS on FD?
Tax Deducted at Source (TDS) is a term used to define the concept of collecting tax from the income source of an individual. This process is done centrally by the Income Tax Department of the Government of India. However, on filing the Income Tax Returns the deductee, whose income has been taxed, can get the amount deducted by submitting the Form 26AS or TDS certificate issued by the deductor. TDS is fully applicable for interest earned on fixed deposits.
Everything about TDS on FD investments
Fixed deposits offered by banks and NBFCs are all applicable to tax deductions. Different thresholds of deductions on interest earnings are applicable to different age groups.
1. TDS on Bank FDs
Interest income will be taxable if the earnings exceed Rs. 40,000 for citizens aged below 60 and up to Rs. 50,000 for senior citizens. The tax on FD interest is deducted at 10%.
2. TDS on non-bank (NBFC) FDs
For non-bank (NBFC) FDs, the threshold limit for tax on FD interest is Rs. 5,000. The interest income will be taxable if the earnings exceed Rs. 5,000 in the case of a company FD. The TDS is deducted at 10%. But if the interest you earn on FDs exceeds the amount mentioned above, and you fail to share your PAN details with your bank or NBFC, the TDS to be deducted doubles to 20% of the interest earned.
Indian residents pay lesser TDS compared to their NRI counterparts, 10 and 30 percent respectively. For both cases, you can submit Form 15G or Form 15H at the beginning of the financial year to claim tax exemption on fixed deposit.
If your total income is below the tax slab threshold, you can either submit supporting documents or file for a TDS return later.
How TDS on fixed deposit interest is calculated?
The total interest income from your fixed deposits in a given financial year must be included to your total income and taxed accordingly if the bank does not deduct TDS from it.
Even though it might not be paid out, include the interest income in your overall income on your yearly Income Tax Return (ITR). When filing an ITR, interest income must be disclosed under the heading "Income from other sources." Check which tax bracket you are in.
The TDS (which has already been deducted) will be adjusted by the income tax division against your final tax obligation.
By looking at your Form 26AS, you can see the specifics of the TDS that was taken from any of your earnings.
TDS on FD interest for senior citizens
Senior persons are eligible for income tax deductions of up to Rs. 50,000 per year. It is relevant if they get interest income from fixed deposits, savings accounts, and recurring deposits. This is a change made in accordance with the 2018 finance act.
TDS on FD interest for non-senior citizens
The TDS (tax deducted at source) rate on FD (Fixed Deposit) interest for non-senior citizens in India is 10% of the interest earned, provided the interest income exceeds Rs. 40,000 in a financial year.
If your total income for the financial year, including the interest income from FD, is below the basic exemption limit, you can submit Form 15G or Form 15H to the bank. This acts as a request that no TDS be deducted on the interest income.
If you fall in the higher tax bracket, you may have to pay additional tax on the FD interest earned, over and above the TDS deducted by the bank. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.
Is FD interest taxable if my income is below the tax limit?
Yes, fixed deposit (FD) interest is taxable even if your income is below the tax limit. Interest income from FD is considered as income from other sources and is taxable as per the income tax laws in India.
However, if your total income including the interest income from FD is below the basic exemption limit. You may be eligible for a refund of the TDS (tax deducted at source) that may have been deducted by the bank on the interest earned.
It is important to note that the basic exemption limit may vary from year to year, depending on the prevailing tax laws. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.
About Form 15G and 15H
Form 15G and Form 15H are documents that declare your income is below the minimum tax slab for the particular financial year. Citizens aged above 60 years are also exempted from paying TDS on interest earned on fixed deposits if their total income from investments does not exceed Rs. 2,50,000. All they need to do is submit Form 15H. If the TDS has been applied and your total income is below the minimum tax slab, then you can claim a TDS refund on fixed deposit income while tax filing annual IT returns.
With this information you can now start your investment journey and plan to manage tax deductions wisely.