Fixed deposits are understood as the most trusted form of management of funds. The customers always favour the FD deposits for their tendency to protect against financial strains. A Fixed deposit will always be the safest economic way to preserve the money of an individual. The fixed deposit allows one to make use of the complete future of section 80C to make a  deduction of One and a half lakh rupees from the taxable income of an individual. It offers capital protection with the interest returns for the individual. But this income becomes taxable. The investors fail to realise that the tax payment on that interest must be made on time. Every individual has queries regarding the income tax for FDs, and it is essential to have it cleared before investing in them. One can understand when and how the amount of income tax on fixed deposit interest income is made with the below information. 

How will an interest income be taxed? 

The interest income from the fixed deposits is fully taxable. It is added to the total income, and it gets taxed at piece rates that apply to the total income of the individual. One will be able to see it under the head ‘income from other sources’ in the income tax return of the individual.  This tax will be deducted at the source by the bank at the time of crediting the interest into one’s account.   It will not be deducted at the time when the FD matures. When an individual has a fixed deposit for three years, the financial bank will deduct the TDS at the end of each year.

When one receives a certain amount of payment, the person who pays the individual must deduct the tax before making that payment. It is the tax deducted, and it is termed as the TDS which is made as a payment to the central government. The individual will receive the amount net of tax. The individual must then add the gross amount to the income and then adjust the TDS against the final tax liability. 

How to calculate tax on the interest income?

One must add the interest income to the total revenue in your income tax return for each year, and it applies even though it is not paid out. It is advisable to check for the tax slab rate that one falls into. It has to be matched with the yearly TDS deduction from the end of the bank. The income tax department will always adjust the deducted TDS against your final tax liability. 

In some cases, where there is no TDS is deducted, include the interest income in your income and make the tax payment for it.  Suppose one awaits until the maturity of the fixed deposit when the interest is received, the total interest income may push you to the slab. Eventually, you end up paying a higher tax. The clear tax can import the TDS entries from the IT department at the time of filling up of returns. This will make you not miss out any of the listings. One can view the details of TDS deducted on any of the income by considering the form 26AS. 

For example,  a person falls in the 20% of a tax bracket. The person has two fixed deposits with a financial bank of one lakh rupees each of three years at 6% interest per annum. In the first year, the interest income of the person is six thousand rupees from each of the FDs, and the total interest accrued is twelve thousand rupees in the first year. The bank does not deduct TDS for annual FD interest below forty thousand rupees.  

When to pay tax on interest income?

When any tax is payable after inclusion of the interest income in your total income, one must pay it before the 31st of March, which is the last day of the financial year. This is how one can make the payment for any tax that is due. When there is a large income from the interest, there is an advance tax which is payable for quarterly. 

Understanding TDS with FDs-

1. When will the bank not deduct the TDS: 

When the interest income from all the FDs with any financial lender is less than forty thousand rupees in a year, the commercial bank cannot make any deduction as TDS. Previously during the budget 2019, the limit for the TDS on the interest income used to be ten thousand rupees. 

2. When will the bank deduct TDS @ 10%:

The financial lender will estimate the interest income of the individual for the year from all the FDs that one has with the bank. There will be a 10% TDS deduction if the interest income exceeds forty thousand rupees. Previously during the budget 2019, the TDS limit on the interest income used to be ten thousand rupees.

3. When will the bank deduct TDS @ 20%:

In some cases, when one does not provide the PAN information to the commercial bank, there will be a deduction of 20% TDS. Always make sure that the bank has all the PAN details.

4. When the overall income is less than Rs. 2.5 lakh:

There will be no TDS deductible when the total income is less than the minimum taxable amount. Some of the financial investors will have more than forty thousand rupees interest income in a year, but the total income will be less than minimum exempt income. When there is no tax payable by the individual, the financial bank cannot deduct the TDS.

5. How to ensure a zero TDS deduction by the bank:

There is only one way to ensure if there is no zero TDS deduction made by the commercial bank. One has to submit the Form 15G and Form 15H to the bank. Both these two forms must be presented at the beginning of every financial year to avoid the hassle of the extra TDS deduction and consecutive refund from the IT department. 

Interest from Fixed deposit for senior citizens-

The senior citizens who receive the interest income from the FDs, savings account, and recurring deposits can also avail the income tax exemption of up to fifty thousand rupees annually. This is done as per the regulations of the amendment vide finance act 2018. It is advisable to read the detailed article about this where we have discussed the provisions of section 80 TTB. If the senior citizen interest income from all the FDs with any commercial bank is less than the fifty thousand rupees in a year, the bank will not be able to deduct any TDS. 

Footnote-

On the whole, having a fixed deposit will offer more security, especially when one has a lower risk craving, and so investing in stock markets or any other market will not be a good option. This is a conventional form of an investment, and many financial lenders have now introduced attractive offers and benefits to it. With the information listed above regarding the income tax payment for the fixed deposit income, one can have a better understanding of the taxes on FD.

By Darbaar

Anurag Rathod, as a blogger he used to spread all about app-based business, startup solution, on-demand business tips and ideas and so on.

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