Fixed deposit (FD) guarantees the protection of capital along with some interest income. But you should know that the interest on fixed deposits is taxable. Investors give little thought to paying taxes on interest income in a timely manner. In this article, you will find out all the details about the income tax on the interest of your fixed deposits.
Income tax on interest on fixed deposit: Overview
Interest income from your fixed deposits is always taxable. When you add it to your gross income, it will be taxed at the flat rate applied to your gross income. This should be listed on your income tax return, and it will be categorised as “Income from Other Sources”.
The bank will deduct withholding tax at the time the interest is credited to the account if the interest amount exceeds Rs. 40,000 for all people except senior citizens. For senior citizens, the threshold will be Rs. 50,000.
So, you can say that TDS is deducted when interest accrues, not when the FD completes the maturity circle. So if you hold FD for 3 years, the bank deducts TDS at the end of each year.
See also: Section 194Q of Income Tax Act
Income tax on interest on fixed deposit: How to measure
Every year, you have to add the interest income to the main total income when you are filing the tax return. Interest income will be categorised as “Income from other sources”. After checking the TDS, the income tax department will adjust it with the final tax liability.
The total interest income from your fixed deposits in a given financial year must be added to your total income and taxed accordingly if the bank does not deduct TDS from it. It is not a good idea to wait to report interest income until your FD matures when interest is actually received. This is so that you don’t end up paying more tax because the accumulated interest could move you up to a higher tax bracket. You will find the details of TDS which is deducted from your income in Form 26AS.
Income tax on interest on fixed deposit: When to pay
If there is tax owed as a result of including interest income in your overall income, the tax must be paid by March 31 of the following year at the latest. You can pay any overdue taxes in this manner.
However, you should indeed pay advance tax if the amount of tax due after adding your interest income to your total income exceeds Rs. 10,000. As a result, rules for quarterly instalment payments of advance tax must be developed.
FAQs
Is fixed deposit interest taxable in India?
Yes, according to the Income Tax Act of 1961, fixed deposit interest is fully taxable in India.
How much interest on FD is TDS free?
In case your interest income from all fixed deposits with a bank is less than Rs 40,000 in a year, the bank can not deduct any TDS.
How is income tax computed on FD?
FD Interest is taxable at your slab rate along with the applicable surcharge or cess.
What is the max limit of FD tax exemption?
Rs.1.5 lakh per annum is the max limit for FD tax exemption.
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