Is Fixed Deposit Interest Taxable in India: Everything You Need to Know About FD Taxable
Fixed deposits (FDs) have always been a preferred investment source for people of all ages. FDs serve as a reliable asset, providing a secure return on investments in the form of interest. However, there is often some confusion regarding the tax laws about FDs in India. So, if you are a potential investor or an existing fixed deposit holder, read on to know about the taxes on FDs in India.
Is fixed deposit interest taxable in India?
According to the Income Tax Act, 1961, interest on FDs is treated as ‘income from other sources’ and hence, is fully taxable. The FD interest earnings are included in your gross annual income, and the tax liability is estimated, following the prevalent tax laws.
When are you liable to pay tax on FDs?
From April 2019 onwards, if the interest on FD is more than ₹40,000, then PAN users would be liable to pay 10% as tax and non-PAN users would pay 20% tax on interest earned. This interest would be deducted as TDS (tax deducted at source) at the time of credit of annual interest. The upper limit of ₹40,000 is not applicable on aggregate earnings but is for individual FDs.
What is the TDS on FDs?
The tax on FD interest is deducted as TDS at the time of credit of annual interest. The bank will automatically levy TDS on the interest earned on your fixed deposit in a given year. To distribute the burden of tax payment, the tax is levied every year on the interest earned. The issuer deducts TDS when interest is earned and not when the interest is received.
For example, you have an FD with X Bank for four years, and your annual interest earnings are ₹40,000. For tax computation, X Bank will deduct TDS at 10% of interest every year. So, the bank will levy a tax of ₹4,000 for four years, instead of ₹16,000 upon maturity.
The TDS on FD is levied only if the interest earned exceeds ₹40,000 in a fiscal year. The limit is ₹50,000 for senior citizens. If your interest income falls above the ₹40,000 (₹50,000 for senior citizens) threshold then you need to submit your PAN Card details/. On submission of PAN Card, the TDS deducted is 10% of the total interest earned. In case of absence of PAN Card, the TDS deducted will be 20%.
However, this is not the overall tax liability but only a part of the whole. The total tax on FD is calculated according to the income tax slab of that particular year.
What if total earnings of a financial year are below the taxable bracket?
In case your total income in a financial year is not more than ₹2,50,000 (minimum taxable amount), you will be exempt from tax implications. There will be no TDS deduction on FD interest. However, to be eligible for tax exemption, you would need to submit form 15H or 15G (depending on age and income) with instructions to not deduct TDS.
You have to submit these forms to the issuer of the FD at the beginning of the financial year. If the issuer deducts TDS before the submission of these forms, you can easily file for an Income Tax Return (ITR). You can also avoid tax by opting for tax-saving FDs, which have a lock-in period of 5 years, and you can claim deduction under Section 80C of the Income Tax Act.
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Key features of general YES BANK FDs include:
The superior interest rate on savings with higher returns for senior citizens.
An auto-renewal option, allowing you to earn maximum interest.
The flexibility of tenure, ranging from 7 days to 10 years.
Easy withdrawals and flexible interest pay options (compounded or credited), enhancing liquidity.
An overdraft facility at competitive rates. Option to borrow up to 90% of the FD amount.
Easy and free accessibility to funds from any of YES BANK’s branches in India.
You can apply for a YES BANK FD online from the comfort of your homes or by visiting your nearest branch. Choose YES BANK for better growth, higher savings and utmost security of funds.