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Arwind Sharma
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Fixed Deposits are a popular choice among Indians as an investment option. It’s considered to be an extremely safe choice. Plus, FD interest rate returns are stable and predictable.
The interest income can be attractive. However, some people forget or don’t intend to declare the interest income while filing tax returns.
Can you avoid paying tax on Fixed Deposits? No, apart from the legal consequences, it’s not practical.
The government gets all the information regarding your interest income on Fixed Deposits. Income from Fixed Deposits comes under the heading we know as “Income from other sources”.
How Much Tax Should you Pay?
You want to declare the interest income from Fixed Deposits but don’t know how much to pay. How will you calculate your income on FDs in return?
The plethora of online FD calculators can help you. Just enter the FD amount, FD period, rate of interest and compounding frequency. The maturity and interest amount will automatically be calculated.
If the total income from your Fixed Deposit exceeds Rs.10,000 in a financial year, then you’ll have to pay Tax Deducted on Source (TDS).
If you have your PAN details available, TDS will be deducted at 10% of your interest income. Otherwise, you’ll have to pay 20% of your interest income as TDS.
TDS will be deducted on an accrual basis. A periodic deduction will be made even if the interest is not actually paid to you. Therefore, it’s important for you to pay tax on an annual basis. If you pay only when your FD reaches maturity, you will be taxed for a higher amount. This might occur as you will be pushed up the slab rate due to the higher amount of your interest.
If your interest income falls below the exemption level, you still have to submit a declaration by filing Form 15G or 15H. You can also apply for refund during tax filing.
TDS deducted will reflect automatically on Form 16A. You can use this form to find out interest for the financial year.
You can avoid paying TDS if you use a clever method. Split your investment into multiple FDs across different banks. This ensures that the interest income always falls below the exemption limit for every FD account.
Furthermore, even if you are exempted from paying TDS, you will have to pay a separate tax known as self assessment tax. Self assessment tax will be charged on your interest income as per the Income Slab Rate that you belong to.
You have to deduct the TDS amount from the total tax that you need to pay. This will reflect the remaining tax that you have to pay. Since TDS is automatically deducted by the bank, you just need to pay the self assessment tax.
When Should you Pay?
You have to pay your taxes by the 31st of March of every financial year. Else you will be liable to pay Rs.5,000 penalty under Section 271F of the IT act.
However, if the interest income on your FD is huge, you may have to pay advance tax. You can calculate your quarterly tax dues and pay them as per advance tax timelines.
Don’t make the assumption that people usually make. Interest income on FD is fully taxable. Even if your interest income does not exceeds Rs.10,000 in a financial year, you’ll still have to declare your interest income to avoid a notice from the Income Tax department.
It’s important to keep your side of taxes as clean as possible by paying them whenever they’re required. Not only is it legally required, but you’re also doing your part to keep your country running smoothly.
The interest income can be attractive. However, some people forget or don’t intend to declare the interest income while filing tax returns.
Can you avoid paying tax on Fixed Deposits? No, apart from the legal consequences, it’s not practical.
The government gets all the information regarding your interest income on Fixed Deposits. Income from Fixed Deposits comes under the heading we know as “Income from other sources”.
How Much Tax Should you Pay?
You want to declare the interest income from Fixed Deposits but don’t know how much to pay. How will you calculate your income on FDs in return?
The plethora of online FD calculators can help you. Just enter the FD amount, FD period, rate of interest and compounding frequency. The maturity and interest amount will automatically be calculated.
If the total income from your Fixed Deposit exceeds Rs.10,000 in a financial year, then you’ll have to pay Tax Deducted on Source (TDS).
If you have your PAN details available, TDS will be deducted at 10% of your interest income. Otherwise, you’ll have to pay 20% of your interest income as TDS.
TDS will be deducted on an accrual basis. A periodic deduction will be made even if the interest is not actually paid to you. Therefore, it’s important for you to pay tax on an annual basis. If you pay only when your FD reaches maturity, you will be taxed for a higher amount. This might occur as you will be pushed up the slab rate due to the higher amount of your interest.
If your interest income falls below the exemption level, you still have to submit a declaration by filing Form 15G or 15H. You can also apply for refund during tax filing.
TDS deducted will reflect automatically on Form 16A. You can use this form to find out interest for the financial year.
You can avoid paying TDS if you use a clever method. Split your investment into multiple FDs across different banks. This ensures that the interest income always falls below the exemption limit for every FD account.
Furthermore, even if you are exempted from paying TDS, you will have to pay a separate tax known as self assessment tax. Self assessment tax will be charged on your interest income as per the Income Slab Rate that you belong to.
You have to deduct the TDS amount from the total tax that you need to pay. This will reflect the remaining tax that you have to pay. Since TDS is automatically deducted by the bank, you just need to pay the self assessment tax.
When Should you Pay?
You have to pay your taxes by the 31st of March of every financial year. Else you will be liable to pay Rs.5,000 penalty under Section 271F of the IT act.
However, if the interest income on your FD is huge, you may have to pay advance tax. You can calculate your quarterly tax dues and pay them as per advance tax timelines.
Don’t make the assumption that people usually make. Interest income on FD is fully taxable. Even if your interest income does not exceeds Rs.10,000 in a financial year, you’ll still have to declare your interest income to avoid a notice from the Income Tax department.
It’s important to keep your side of taxes as clean as possible by paying them whenever they’re required. Not only is it legally required, but you’re also doing your part to keep your country running smoothly.
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