Tax deducted at source, or TDS, is interest directly deducted from people when they receive payments, salaries, fees, commissions, rent or income from any other sources. Whether FDs are taxable or not, remains a question that hounds almost everyone.
The interest earned from Fixed Deposits is taxable. They’re taxed at the same rate, as the rest of your Gross income. Many times, income earned from FDs is missed out from tax returns, which leads to a notice from the Income Tax Department.
To avoid this situation, you must declare your FD under ‘Income from other sources’, depending on the taxable amount limit, as per your financier.
If you deposit a large sum in your FD, tax deductions are incurred at source. The interest will be taxed at the same rate as your gross income, which means it can vary from 0% to 30%. For example, if you fall under the 30% income tax bracket, you will have to pay 30% tax on the interest earned from your Fixed Deposit. But, if the interest earned does not exceed Rs. 10,000, then you don’t have to pay any tax on the interest.
How can Form 15G and Form 15H help?
As per Section 194A of the Income Tax Act, people getting an interest amount of more than Rs. 10,000 from their fixed deposits, but were not liable to pay income tax, were also being taxed. Forms 15G/15H are for such individuals, who can furnish them for nil or lower deduction of TDS.
Here’s a look at how Form 15G and Form 15H can help you:
Form 15G – Individuals who are below 60 years of age, can submit Form 15G to their financial institutions.
Form 15H – This form should be submitted by senior citizens, but it is important to ensure that the final tax on the estimated total income should be nil for the financial year. It is however, important to submit both these forms at the start of the year, because the interest once deducted by the financial institution cannot be refunded.
Budget 2018 has brought several new reasons for senior citizens to cheer! The Tax Deducted at Source (TDS) exemptions have increased to Rs. 50,000 on bank deposits. Additionally, senior citizens can seek a tax exemption up to Rs. 50,000 on fixed deposits.
Also Read: Ways to Protect Your Retirement Funds from Tax