What is a Fixed Deposit?
A fixed deposit is a saving instrument where you can deposit a sum of money for a fixed period of time and you get can earn interest on the same. On maturity of the fixed deposits, the depositor gets back the interest earned along with his principal amount that he had invested. FDs are a relatively safe investment option and FDs up to Rs 1 lakh are guaranteed by the Deposit Insurance Guarantee Corporation of India (DIGCI)
Income tax on fixed deposits:
Firsly Fixed Deposits are a great source of saving and multiplying your income in terms of interest one gets from FDS.But you will wonder to know that the interest income you get from the fixed deposits is taxable.
How to calculate interest income?
Well it is very simple.if you are a salaried employee whether Govt. or non-Govt. You will have to file your income tax return mainly ITR-1.
which includes income from salary,income from one house property and income from other sources which are Fix Deposits interest and interest got from saving bank account income.
In case of FD(Fixed Deposite) You will have to add interest income from FD in the HEAD of “income from other sources” in income tax return ITR-1.And calculate it as per income tax rate slab.
How banks deduct tax from FIXED DEPOSITS Interest?
As per Incometax department instructions,all banks deduct income tax from your FD’s interest income @10% if you have already submitted the copy of your Pan card,If not did so,bank will debit @20%.
Important point to note here that if your income tax as per incometax slab is below thresh hold limits that is either Rs 250000 or below then bank will not cut income tax untill you submit form 15G for persons below 60 and form 15H for senior citizens.
EXAMPLE TO EXPLAIN FIXED DEPOSITS INCOMETAX:
Suppose you are a salaried employee and your taxable income is RS 500000(five lakh) excluding Rs150,000 saving and RS 250,000(Exempt income) and also suppose you have got Rs 10000 interest from your FD.
And your bank has cut Rs 1000 @ 10% .so now your total taxable income is Rs 510,000.Now you fall under 20% slab rate.
But your bank has cut @10% BUT it is actually now 20% (Rs 2000) Now your tax @ 20% of Rs 5,10,000 is Rs 1,10,000.
- Bank deducts TDS @ 10% in a financial year only if your FD interest income is greater than 10,000.
- Bank will deduct TDS @ 20% if you not provide your PAN.
- If your income is only Rs 2,50,000 for FY 2019-20 then bank will not deduct any TDS on the condition of submitting form 15G OR 15H whichever will be in your case.
- Benefits of submitting form 15G Or 15H is that bank will not cut tds and you need not to wait for incometax refund from the dept. Which is quiet a long lasting process.
Section 80TTA deduction not available on FD Interest
This deduction is NOT applicable to the interest you received on your FDs/time deposit or term deposit. Term deposit means a deposit received by the bank for a fixed period and can be withdrawn only after the expiry of the predefined fixed period