A Fixed Deposit is undoubtedly one of the most feasible investment products, owing to its assured returns and power of compounding. This type of investment is suitable mostly for individuals seeking a safer platform to park their corpus.
However, when it comes to Fixed Deposits, you need to know if FD interest is taxable or not. In this regard, you should know that the IT Department makes it necessary for FD account holders to pay income tax on the interest earned on FDs.
Is fixed deposit interest income taxable or not in India?. Find more details about this in the following sections.
Taxation of FD Interest Income!
Your interest income through FDs is fully taxable, which becomes a part of your tax liability. When you earn interest income from an FD, it becomes a part of your annual income. You need to pay tax depending on your annual income, which determines the tax slab you fall into.
Besides, the interest income earned through FDs is considered “income from other sources”. Thus, it is charged as TDS, or Tax Deducted at Source. In simple words, your bank deducts the tax from your interest income before depositing the corpus in your bank account. Thus, you are not required to file any form to pay tax on FD.
At the same time, you should remember that banks do not levy tax on Fixed Deposits if an individual’s income is less than Rs.2.5 Lakhs, i.e., if he does not fall within the tax slab as set by the Income Tax Department.
However, to prove that you are not eligible for taxation, you need to provide Form 15H and 15G to your bank at the beginning of a financial year. This will help you avail a refund on FD TDS. In this regard, it is also applicable to senior citizens whose annual income does not exceed Rs.2.5 Lakhs.
Apart from that, if your interest income from all FD accounts is less than Rs.40,000 in a particular financial year, you bank will exempt TDS.
Understanding TDS on Investments!
TDS means collecting tax directly from the income source of individuals. This process is undertaken directly by the IT Department. However, when you file the IT returns, you can seek a TDS refund if you fall within that eligibility bracket.
The rate of TDS on Fixed Deposits varies depending on various factors. Find details below:
- Interest income on FDs becomes taxable if an individual below the age of 60 years has earned an interest of more than Rs.40,000 annually through this investment route. The threshold for senior citizens is Rs.50,000. If you are wondering is FD interest taxable or not, know that in this case banks typically levy TDS at 10%.
- For NBFCs, the threshold limit for TDS is Rs.5,000. Your interest income becomes taxable on earnings above Rs.5,000 if it is a company FD. In this case, NBFCs charge TDS at 10%. However, if your interest income exceeds the amount above, and you do not share your PAN details with your bank, then you will have to pay TDS at 20%.
Apart from these factors, Indians typically have to pay less TDS as compared to Non-Resident Indians (NRIs). The TDS rate for the latter is set at 30%. However, for both these cases, you need to submit Form 15H or 15G to claim tax benefits before the financial year starts.
Let us know is FD interest taxable or not through an example.
Suppose an individual has three FD accounts in different banks. Bank A helps him earn interest of Rs.30,000 annually, bank B provides him an annual interest of Rs.50,000 on FD and bank C extends an interest income of Rs.20,000 to him.
Since his/her interest earnings exceed Rs.40,000, that individual needs to pay TDS on FD at 10%. Now, note that the IT Department does not consider your total income earned from different banks. Your tax liability lies in the Rs.50,000 interest earned from bank B. You can claim TDS refund for the remaining two accounts.
The rules are same for senior citizens. However, in their case, this limit increases to Rs.50,000.
How to Claim TDS Refund on Fixed Deposit?
If your banks deduct TDS from your FD account and you do not fall within the tax slab, you can claim TDS refund in the following ways:
- Declare your income details in your IT return form.
- Fill Form 15G and submit it to your bank if your income falls below the tax slab limits. If you are a senior citizen, submit Form 15H in this regard.
A Fixed Deposit is indeed a great investment option for risk-averse individuals. However, before proceeding, consider conducting proper market research and compare between different FD offers. You can conduct this step easily through Bajaj MARKETS, which is a diversified marketplace of various FDs offered by leading banks and financial institutions at attractive interest rates.
Furthermore, if you are wondering is FD interest taxable or not, you should also have a clear idea about the taxability of interest income as a whole. This will maximise your knowledge in this field and help you make informed choices.