May 25, 2024

There is no doubt in the fact that FDs have long been a favored investment type in our country, offering individuals a secure and predictable way to earn interest on their savings. However, while FDs offer financial stability to individuals, it is essential to understand the tax implications associated with the interest earned on these deposits. 

(Tip: Fixed deposit interest rate India is quite lucrative and considered a wise investment.)

Moreover, nowadays, investing in FDs is quite simple. You need not go anywhere and just have to download the right application on your smartphone. Once you do this, you are good to go, and your investment is initiated within seconds. 

What is a fixed deposit?

When you first hear about this investment scheme, you get a brief idea by its name of what it’s about. A fixed deposit or FD is a financial investment type which is offered by banks and other financial institutions to individuals as well as organizations.  

Considered as one of the safest and low-risk investment options, it is quite popular among conservative investors seeking steady and stable returns. 

What are fixed deposit interest rates?

As the term implies, fixed deposit interest rates or fd interest rate refers to the percentage of interest a financial institution offers on the principal amount deposited in a fixed deposit account by the potential investor. 

Keep in mind that these rates can vary based on several prevailing factors and can have a major influence on the overall returns you earn from your investment. 

What are the tax implications on Fixed Deposit Interest Rates?

In our country, the interest amount you earn on FDs is subject to taxation. The tax implications here are governed by the Income Tax of India, and the interest income from fixed deposits is fully taxable. Simply add it to your total income and get taxed at slab rates applicable to your total income. 

It is basically reported under the head’ Income from Other Sources’ in your ITR. The financial institutions deduct tax at source at the time of crediting interest to your account if the amount of interest is beyond Rs 40,000/- for individuals other than a senior citizen. In the case of senior citizens, the threshold is Rs 50,000/-. 

Further, it is pertinent to mention here that you need not pay income tax if your total income for a financial year is Rs 2,50,000/- (Rs 3,00,000/- for senior citizens). This is because, in such cases, interest on FD will not be subject to TDS deduction. You can easily submit forms 15G and 15H every financial year to qualify for FD tax exemption. 

(Note: If, by any chance, your financial institution deducts TDS without the forms, you can claim a refund later while filling ITR.)

Conclusion

Before investing, always try to use a Fixed Deposit Calculator Online in order to get a bried idea of your investment. If you are investing in fixed deposits, remember that the interest earned on it is totally taxable. Moreover, understanding the tax implications on the same is quite crucial for effective financial planning and compliance with tax laws. 

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