Are Fixed Deposit returns taxable?

  • Deposit
  • 1 Months ago

Written by - Shriram

The interest earned on a fixed deposit is fully taxable. Individual FD (Fixed Deposit) account holders get tax exemptions if their total interest income is lower than Rs. 10,000. Registering your PAN (Permanent Account Number) Card can help reduce taxes charges.

FD interest is charged based on one’s tax slab. Fixed deposit returns is added to your total income for calculating the total tax payable. If you do not fall under the minimum tax bracket, you can submit form 15H or 15G to claim exemptions.

Shriram’s Fixed Deposit have flexible tenures and allows you to choose from term anywhere between 12 to 60 months. By investing in in a non-cumulative fixed deposit you can earn a regular income. Use the Shriram FD calculator to know the exact interest rate for a given/predetermined period. Upon maturity of your Shriram FD, enjoy an additional 0.25% per annum if you choose to renew the fixed deposit.

There’s an exhaustive list of benefits to a FD, But it is important to know that the interest earned on an FD is taxable. Keep reading to understand how your FD is taxed and what to do next.

How is Interest on a Fixed Deposit Taxed?

Under the Income Tax (IT) Act, 1961, the interest on an FD will be added under 'income from other sources when you file your IT returns. Some banks and Non-Banking Financial Companies (NBFCs) deduct tax at source when crediting the interest into your savings account. Tax will only be charged if you fall under the taxable limit or earn more than Rs. 10,000 per annum.

If you have an FD with a 5-year tenure, financial institutions deduct TDS (Tax Deduction at Source) at the end of each year. A 5-year tax-saving fixed deposit is exempt from taxes, but the interest on this deposit is still taxable. Upon maturity, the interest amount will be added to your total income and charged according to the tax slab you fall under.

Understanding TDS on Fixed Deposit Interest

A financial institution has to fulfil specific criteria to charge tax according to the government's rules and regulations. Let us explore the conditions under which you can expect a tax on FD interest:
  • No deduction on TDS:

If the total interest from all your fixed deposit investments is less than Rs. 10,000 in a year, the bank or NBFC cannot deduct any TDS. The limit for senior citizens is Rs. 50,000 per year.
  • TDS Deduction at 10%:

Your annual interest income is estimated from all the FDs you have. There will be a 10% deduction if you have provided your PAN (Permanent Account Number) Card details to the financial institution.
  • TDS Deduction at 20%:

If you have not provided the PAN Card details, the financial institution will deduct 20% TDS on your FD interest. You can avoid this tax charge; it would be best to register your PAN Card details at the earliest opportunity.

Read More: Everything you Need to Know About a Tax-Saving FD

How to Calculate Tax on Interest Income?

You must add the interest income from all your FD accounts to your total income. The amount resulting from this addition will then be taxed according to the tax slab it falls under. Here is the formula to better understand how the tax is calculated.

The formula to calculate simple interest (SI) is "principal x rate of interest x term divided by 100" (P x R x T/100)

So, if you invest Rs. 10,000 at 8% interest per annum for a tenure of 1 year, here is how you can calculate:
10,000 x 8 x 1 = Rs. 80,000
80,000 divided by 100 = Rs. 800

If the financial institution does not deduct TDS from your interest income, the total interest earned from the financial year will be added to your total income, and you have to pay tax on it. It is not advisable to wait till an FD has matured to report your interest income. This is because the accumulated interest may push you up to a higher slab, and you may pay more tax.

How to Get Tax Exemptions on FD Interest?

The only way to ensure that no TDS is deducted from your FD interest income is when your total income does not meet the minimum taxable limit. You must also submit Form 15G and Form 15H to your financial institution before the due date. Form 15G and 15H are declarations that fixed deposit holders must fill to ensure no TDS is deducted from their interest income in a year.

Senior citizens with interest income from FDs will not be charged any TDS if their income is less than Rs. 50,000 annually. The senior citizen will have to be over the age of 60 and needs to have an active FD with senior citizen benefits to avail of the tax deductions.

Conclusion

It is essential to track your fixed deposit and the income received so you can file and pay your taxes accordingly. You can make the most out of a fixed deposit scheme when you have understood the tax implications to plan your financial goals.

Open a Shriram FD now to enjoy higher interest rates of up to 8.75% per annum, which includes an additional 0.50% for senior citizens. A Shriram FD will help your hard-earned money grow effortlessly for a safe and secure future. Returns on a Shriram FD do not change with the market or external factors. In times of emergency, you can easily withdraw the deposit amount partially or wholly to support your requirements.

FAQs

  1. Are returns on an FD taxable?
Interest earned from a fixed deposit is taxable. If your total income is below the taxable limit, there will be no TDS charges on the interest income.
  1. How much of an FD interest is tax-free?
For an individual FD account, if the interest earned is less than Rs. 10,000, there will be no TDS charged. For senior citizens, the limit is Rs. 50,000, allowing them to earn more without being charged tax on their income.
  1. Is a 5-year FD tax-free?
A 5-year FD is tax-saving because you can claim it while filing your IT returns. However, the interest on this fixed deposit is fully taxable.
  1. Is there any TDS on a fixed deposit?
Yes, there is TDS for the interest earned on a fixed deposit. The TDS is charged at 10% if you have registered your PAN Card and 20% if there is no PAN Card information.

Key Highlights:

  • You can save taxes with a 5-year tax saving fixed deposit.
  • Interest on a fixed deposit is added to your total income to calculate the tax you will be charged.
  • Individual FD account holders get tax exemptions if their total interest income is lower than Rs. 10,000.
  • Registering your PAN Card details can reduce the TDS charged on your FD interest income.