Just like your earnings apply to tax deductions, the interest you earn from making various investments is also applicable to tax deductions, also known as TDS on FD.It varies from instrument to instrument. Some financial tools are tax-saving havens, like the PPF and various life insurance policies. In contrast, some are taxed heavily based on the nature of earnings like income generated from the equity stock market. Before elaborating on how TDS on fixed deposit affects your fixed depositinvestment earnings, here is aquick summary of the basics.
What is a Fixed Deposit?
The fixed deposit is a fixed income generating instrument where you can invest your savings and surplus income. In return you get return at a fixed rate of interest that is applicable throughout the tenure you choose. This interest rate is not based on market movements and is stable throughout the tenure. This makes it a very safe and low-risk appetite investment option, best for long-term financial goals. At maturity, the investor receives the principal amount and the accrued interest over the tenure. The interest earned by investing in Bajaj Finance Fixed Deposit is taxable.
What is TDS on FD?
Tax Deducted at Source (TDS) is a term used to define the concept of collecting tax from the income source of an individual. This process is done centrally by the Income Tax Department of the Government of India. However, on filing the Income Tax Returns the deductee, whose income has been taxed, can get the amount deducted by submitting the Form 26AS or TDS certificate issued by the deductor. TDS is fully applicable for interest earned on fixed deposits.
Everything about TDS on FD investments
Fixed deposits offered by banks and NBFCs are all applicable to tax deductions. Different thresholds of deductions on interest earnings are applicable to different age groups.
1. TDS on Bank FD
Interest income will be taxable if the earnings exceed Rs. 40,000 for citizens aged below 60 and up to Rs. 50,000 for senior citizens. The tax on FD interest is deducted at 10%.
2. TDS on non-bank (NBFC) FD
For non-bank (NBFC) FD, thethreshold limit for tax on FD interest is Rs. 5,000.The interest income will be taxable if the earnings exceed Rs. 5,000 in the case of a company FD. The TDS is deducted at 10%. But if the interest you earn on FDexceeds the amount mentioned above, and you fail to share your PAN details with your bank or NBFC, the TDS to be deducted doubles to 20% of the interest earned.
Indian residents pay lesser TDS compared to their NRI counterparts, 10 and 30 per centrespectively. For both cases, you can submit Form 15G or Form 15H at the beginning of the financial year to claim tax exemption on fixed deposit.
If your total income is below the tax slab threshold, you can either submit supporting documents or file for a TDS return later.
How TDS on fixed deposit interest is calculated?
The total interest income from your fixed deposits in a given financial year must be included to your total income and taxed accordingly if the bank does not deduct TDS from it.
Even though it might not be paid out, include the interest income in your overall income on your yearly Income Tax Return (ITR). When filing an ITR, interest income must be disclosed under the heading "Income from other sources." Check which tax bracket you are in.
The TDS (which has already been deducted) will be adjusted by the income tax division against your final tax obligation.
By looking at your Form 26AS, you can see the specifics of the TDS that was taken from any of your earnings.
TDS on FD interest for senior citizens
Senior persons are eligible for income tax deductions of up to Rs. 50,000 per year. It is relevant if they get interest income from fixed deposits, savings accounts, and recurring deposits. This is a change made in accordance with the 2018 finance act.
TDS on FD interest for non-senior citizens
The TDS (tax deducted at source) rate on FD (Fixed Deposit) interest for non-senior citizens in India is 10% of the interest earned, provided the interest income exceeds Rs. 40,000 in a financial year.
If your total income for the financial year, including the interest income from FD, is below the basic exemption limit, you can submit Form 15G or Form 15H to the bank. This acts as a request that no TDS be deducted on the interest income.
If you fall in the higher tax bracket, you may have to pay additional tax on the FD interest earned, over and above the TDS deducted by the bank. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.
Is FD interest taxable if my income is below the tax limit?
Yes, fixed deposit (FD) interest is taxable even if your income is below the tax limit. Interest income from FD is considered as income from other sources and is taxable as per the income tax laws in India.
However, if your total income including the interest income from FD is below the basic exemption limit. You may be eligible for a refund of the TDS (tax deducted at source) that may have been deducted by the bank on the interest earned.
It is important to note that the basic exemption limit may vary from year to year, depending on the prevailing tax laws. You should consult a tax expert or refer to the latest tax laws to understand your tax liabilities and obligations.
About Form 15G and 15H
Form 15G and Form 15H are documents that declare your income is below the minimum tax slab for the particular financial year. Citizens aged above 60 years are also exempted from paying TDS on interest earned on fixed deposits if their total income from investments does not exceed Rs. 3,00,000. All they need to do is submit Form 15H. If the TDS has been applied and your total income is below the minimum tax slab, then you can claim a TDS refund on fixed deposit income while tax filing annual IT returns.
With this information,you can now start yourinvestmentjourneyand plan to manage tax deductions wisely.
Download Form 15G and 15H.
Certainly! The concepts covered in the article revolve around Fixed Deposits (FDs) and Tax Deducted at Source (TDS) in the context of Indian financial systems. Let's break down the key concepts and terms used:
Fixed Deposit (FD)
A Fixed Deposit is an investment instrument wherein an individual deposits a sum of money with a bank or a non-banking financial company (NBFC) for a fixed period at a predetermined interest rate. Key points about FDs include:
- Stable Returns: The interest rate remains constant throughout the chosen tenure, offering a stable and predetermined return on investment.
- Low-Risk Investment: Considered a safe investment due to its fixed returns and low-risk nature.
- Maturity: At the end of the tenure, the investor receives the principal amount along with the accrued interest.
Tax Deducted at Source (TDS)
Tax Deducted at Source is a mechanism through which tax is deducted in advance from the income source of an individual. Key points about TDS include:
- Central Collection: Managed centrally by the Income Tax Department of the Government of India.
- TDS on FD Interest: Interest earned on fixed deposits is subject to TDS deductions by banks/NBFCs based on specified thresholds and rates.
TDS on Fixed Deposits
- Threshold Limits for TDS:
- For Bank FDs: Interest exceeding Rs. 40,000 (below 60 years) and Rs. 50,000 (senior citizens) is subject to 10% TDS.
- For NBFC FDs: Interest above Rs. 5,000 is subject to 10% TDS. Failure to provide PAN details can increase TDS to 20%.
- Differentiation for Residents and NRIs: Indian residents have lower TDS rates (10%) compared to NRIs (30%).
- Form 15G and Form 15H: Declarations to prevent TDS deduction if total income is below the taxable threshold.
Tax Implications
- Taxation on Interest Income: Interest earned on FDs is taxable as 'Income from other sources' irrespective of whether the overall income is below the tax limit.
- Senior Citizens: Eligible for higher deduction limits on interest income.
- Form 15G/15H for Exemption: Individuals below the tax slab can submit these forms to avoid TDS deduction.
- Consultation and Understanding Obligations: Advisable to consult tax experts to understand individual tax liabilities.
Considerations for Tax Filings
- Disclosure in Income Tax Returns: Even if TDS is deducted, interest income must be disclosed in the income tax return.
- Refund Eligibility: If income falls below the taxable limit, one may be eligible for a TDS refund.
Form 15G and 15H
- Declaration Documents: These forms declare that the income is below the taxable limit for the financial year, aiming to prevent TDS deduction on interest earned from FDs.
Understanding these concepts is crucial when investing in Fixed Deposits and navigating the associated tax implications in India.
