What is your Tax Liability on FD Interest Income?
What is your Tax Liability on FD Interest Income?


As is frequently the case with other types of investment channels, returns earned via a fixed deposit are taxable. Fixed deposits are subject to tax deductions at source and, depending on your income bracket, you pay tax as per your slab. Knowing these details is key to forecasting what this investment’s net returns are. Here’s all you need to know about paying tax on an FD.

Interest earned is taxed as per your tax slab

The interest you earn from your fixed deposit is taxable and falls under ‘Income from Other Sources’ in your ITR. Say your post deductions annual income (FD interest included) is Rs.8 lakh and the interest you accrue at the end of the year is Rs.12,000. Since you fall under the 20% tax slab, you are liable to pay 20% of 12,000, that is Rs.2,400 as the tax.


TDS is paid to the government by your financier


Whenever your fixed deposit accrues interest, your financier deducts an amount at source (TDS) and pays it to the government. Since interest is accrued not just at maturity your financier will be cutting TDS every financial year.


Till the Interim Budget 2019, banks would cut TDS if the interest accrued crossed Rs.10,000. That threshold has now been increased to Rs.40,000 for regular citizens and Rs.50,000 for senior citizens. NBFCs cut TDS once the interest accrued exceeds Rs.5,000. Also, remember that TDS is deducted at a 10% rate if you have submitted PAN card details and a 20% rate in case you have not submitted PAN card details. So, be sure to submit these details to your issuer.


Tax liability is adjusted with TDS

When paying taxes, your liability is adjusted with the TDS amount paid by your financier. Returning to the above example wherein you fall under the 20% IT slab and have earned an interest of Rs.12,000, consider how TDS adjustments affect your tax payments.

In case you have invested with a bank, no TDS has been cut. This is because your interest accrued is less than Rs.40,000. Thus, you pay the entire amount when filing ITR.

In case you have invested with an NBFC and have submitted PAN details, TDS will have been cut at a 10% interest rate as the interest accrued exceeds Rs.5,000. Thus 10% of Rs.12,000, that is Rs.1,200, has already been paid to the government. So, during ITR filing you only need to pay the balance Rs.1,200.

You can obtain details of your TDS payments by accessing form 16A or form 26AS.


What to do in case your income is within exemption limits

In the event that your taxable income (FD interest included) falls within the exemption limits for the financial year, you can avoid TDS deductions by submitting form 15G/H to your financier. Form 15G applies to regular citizens, and form 15H has to be submitted in case you are a senior citizen.

Having seen how your fixed deposit returns are taxed, plan your finances well so that you can bring your net gains to a maximum. One way you can boost your overall profits is by investing with financiers offering high-interest rates like Bajaj Finance. The Bajaj Finance FD offers new customers rates of up to 8.75%. Senior citizens benefit from a 0.35% FD interest rate hike, and existing customers get a 0.25% higher interest rate on FD renewal.

To plan your finances successfully, use the Bajaj Finance FD calculator, as it gives you accurate figures and will help you zero-in on the right tenor and investment amount. This FD carries high ICRA and CRISIL ratings, which means that once invested, your finances remain in a safe environment. So, what are you waiting for? Invest online today!


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