Is FD Interest Income Taxable? Here are the Key Points to Know in This Regard
Do you plan to invest your hard-earned money to allow it to grow steadily and safely? Fixed deposits, or FDs, are indeed a household name when it comes to investors looking for a reliable and safe investment. However, the question that often puzzles many of us is whether the interest earned on these deposits is taxable. So, let’s take a closer look at FD interest taxation.
Is Fixed Deposit Interest Taxable?
The straightforward answer to this common question is yes. The interest that you earn from your fixed deposits is taxable. The return on the Fixed Deposit that you earn is called “Income from Other Sources” and so forms a part of your total taxable income. So, in case you have taxable income, including the FD interest amounting to be under all applicable tax slabs as per the Income Tax Act, you have to pay a tax on it.
How Much of Your Fixed Deposit Interest is Taxable
So, how much of this interest do you actually have to pay the tax on? The answer depends on the total amount of interest you earn. According to the tax laws, if the interest earned from your fixed deposits in a financial year exceeds ₹40,000 (or ₹50,000 for senior citizens), the bank is mandated to deduct a Tax Deducted at Source (TDS) at a rate of 10%. This deduction applies to all your FDs in the bank, whether in the same branch or different branches of the same bank.
For example, if you have multiple FDs across different branches of a bank and the cumulative interest from all these FDs exceeds ₹40,000 (or ₹50,000 for senior citizens) in a financial year, TDS will be deducted from the interest earned. It’s important to note that if you do not provide your PAN details to the bank, TDS will be deducted at a higher rate of 20%.
Is it Possible to Save on Fixed Deposit Interest Taxation?
Now, the big question: is there a way to save on fixed deposit interest taxation? Yes, there are a few strategies you can consider. One option is to spread your deposits across multiple banks. By doing this, you can ensure that the interest from each bank stays below the TDS threshold, thus avoiding TDS altogether.
Another approach is to time your deposits in a way that the interest credited in a financial year remains below the threshold limit. Senior citizens can make use of Section 80TTB, which allows a deduction of up to ₹50,000 on interest income from deposits with banks, small finance banks, post offices, and cooperative banks.
If you believe your total income, including the FD interest, is below the taxable limit, you can 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. This will prevent the bank from deducting TDS on the interest income.
Conclusion
Fixed deposits are a safe haven for your money, offering steady returns with minimal risk. However, it’s crucial to understand the tax implications of the interest earned on these deposits. By being aware of the taxation rules and employing smart strategies, you can maximize your returns and reduce the tax burden on your FD interest income. Always keep in mind that staying informed and planning your investments in line with tax laws can help you make the most of your savings. So, next time you think about investing in an FD, remember these key points to ensure your investment remains as fruitful as you intended it to be.
