A fixed deposit is a safe investment instrument on which interest rate is higher than saving accounts.The term of this type of deposit is fixed hence also termed as time deposits and any amount once deposit cannot be withdrawn before the term expiry.
The interest from fixed deposits are fully taxable. It comes under the head “Income from Other Sources” while filing income tax return. In case of fixed deposits, bank deducts tax at source at the end of each year when the interest is paid by the bank . 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. The TDS can be deducted at the time of calculating taxable income while paying the tax to the Government by the taxpayer.
Any amount deducted by bank can be verified with Form 26AS.
The taxpayer only need to deduct tax deduction at source done by the bank for his interest on fixed deposit while filing return for income tax. The bank will deduct tax on his own while giving interest to the depositor.
Tax deduction at source is done at the rate of 10 % by the bank on the interest amount exceeding Rs. 40,000(As amended in Finance Budget ,2019). Lets understand this better with an example:
Karan has one Fixed Deposit with a bank of Rs 2,00,000 for a period of 3 years @ 8% interest per annum. In the first year, his income from interest is Rs 16,000 from the Fixed Deposit. Bank deducts Tax Deduction at Source at the rate of 10 % on the fixed deposit. The tax deduction at source will be of Rs 1600 on his Fixed Deposit. He can file deduction of Rs 1600 at the time of filing return of income tax.
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.
When the income from interest of fixed deposit is less than Rs 40,000 in a year, tax is not applicable. When the income from interest of fixed deposit exceeds Rs 40,000, bank deducts tax at source in form of tax from the depositor. The bank deducts tax deduction at source at the rate of 10 % per annum.
The tax is applicable on the income from the interest on savings that is 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 interest income from fixed deposits.
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