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A fixed deposit is a lumpsum investment having fixed tenure to maturity. You can open a fixed deposit with any bank or financial institution. It is a safe investment having a predetermined interest rate, which is a little higher than saving accounts. Since the time period of investment is fixed and no premature withdrawals are permissible it is also known as term deposits.
The interest from fixed deposits is fully taxable. It comes under the head “Income from Other Sources” while filing an income tax return. In case of fixed deposits, the bank or financial institutions deduct tax at source at the end of each year when the interest is paid by them. The rate of tax deduction at source is 10% if the income from interest for each year exceeds Rs 10,000. [This limit has been increased to Rs 40,000 in Budget 2019]. However, if you don’t submit your PAN card, TDS @ 20% is deducted on your interest income. Any amount deducted as TDS can be verified with Form 26AS. The TDS can be deducted at the time of calculating taxable income or while paying the self-assessment tax to the Government.
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Even if TDS is not deducted every year, Add the interest income in your total income. Because if you don’t, then in the last year(i.e.5th Year), consequences will be –
Suppose Aakriti has an income of Rs. 9.5 Lakhs. hence she belongs to the 20 % tax bracket. she has an FD of Rs 2 lakh with a bank that gives her an 8 % interest per annum. So, the interest she earns on the FD for the current financial year is Rs 16,000. (Remember, banks tax FDs at 10 percent only.)
Now, Aakriti is liable to pay tax on the interest she earns at the same tax rate as she pays for her gross income.
The TDS (or tax) on fixed deposit interest shall not be deducted in the following cases:
If the income of interest is to be included in the total income, the tax must be paid before 31st March or end of the financial year you can say. In case there is a large amount of income from interest, the tax is paid in the form of advance tax that is to be paid on a quarterly basis.
The tax is applicable to the income from the interest on savings that are fixed deposits too. The tax is not paid directly to the Government, the bank itself deducts the amount of tax in the form of Tax Deduction at Source (TDS) if tax is applicable on the interest income of the depositor. This tax deduction can be deducted while the tax return is filed by the taxpayer.
Yes, income from interest on fixed deposits is taxable under the head income from other sources.
Tax is deducted in the form of Tax Deduction at Source (TDS) by the bank for interest income from fixed deposits. The rate of tax deduction at source is 10 % if the income from interest for each year exceeds Rs 40,000. If the interest income is below Rs 40,000, no Tax Deduction at Source (TDS) is deducted by the bank.
No, only if the income from interest exceeds Rs 40,000 per annum(as amended in Finance Budget 2019) the Tax Deduction at Source (TDS) is applicable. Otherwise, no tax is deducted on the interest income from fixed deposits.
The taxpayer only needs to deduct tax deduction at source done by the bank for his interest on fixed deposit while filing a return for income tax. The bank will deduct tax on his own while giving interest to the depositor.
When the income from the interest of a fixed deposit is less than Rs 40,000 in a year, tax is not applicable. When the income from the interest of a fixed deposit exceeds Rs 40,000, the bank or financial institutions deducts tax at source in the form of tax from the depositor. The bank deducts tax deduction at source at the rate of 10 % per annum if PAN details are furnished and 20% otherwise.
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