Do you feel good when there is a tax deduction on the interest amount you earned from your Fixed Deposit (FD) investment?
Here is an article that explains how a tax on fixed deposit interest is calculated and a few valuable tips on how to save tax on FD interest amounts.
Investors desire to save money but not at the expense of giving away the interest amount gained from the hard-earned investment in taxes. A fixed deposit is one of the excellent choices if you want to invest a considerable amount of money and save taxes simultaneously. The interest income you earn is fully taxable as it is considered 'Income from Other Sources’ under the Income Tax Act, 1961.
There are ways to save taxes on your FD investment. You can open a tax-saver FD or submit forms 15H and 15G for your existing fixed deposit accounts. So, when you plan a fixed deposit investment, use an online FD calculator to find the interest amount you would earn at maturity, calculate TDS and then book your FD.
Introduction to a Fixed Deposit
A fixed deposit is the most famous investment option that provides a stable income for a fixed period without exposing your FD principal amount to market fluctuations. In other words, an FD is a money-saving tool that helps you save a considerable amount of money and earn income from the accrued interest.
Usually, the FD interest rates are assumed to be lower than the interest rates of many other market-driven investment options. However, with the presence of Non-Banking Financial Companies (NBFCs) like Shriram, this common interpretation of lower interest is disrupted as Shriram offers an attractive FD interest rate of up to 9.40%* p.a.
Tax on a Fixed Deposit Interest
TDS (Tax Deducted at Source) is a tax deducted on the accrued interest amount of an FD. The deduction is not calculated on a single fixed deposit but on the accumulated interest amount across multiple fixed deposits you hold as the investment. The TDS is deducted when the accumulated interest amount falls under the taxable bracket.
The taxation rate or percentage is fixed based on the tax slab, so banks and NBFCs can deduct TDS if the accrued interest amount per annum exceeds the threshold.
Basic Regulations of TDS on a Fixed Deposit
To comprehend how TDS works on a fixed deposit, here are a few essentials and guidelines you should know about TDS.
1. NBFCs and Banks can only deduct TDS on a fixed deposit at the end of every fiscal year.
2. The standard rate of taxation on an FD is 10% of the interest earned in the fiscal year.
3. If you neglect to provide PAN (Permanent Account Number) Card details linked to your fixed deposit account, banks or NBFCs can deduct 20% TDS.
4. The primary account holder is responsible for paying TDS, and the secondary account holder is not liable for TDS deductions if joint account holders hold the FD.
5. You must know that the interest accrued from a Tax-Saver FD scheme also attracts TDS.
TDS Calculation on a Fixed Deposit
Considering the standard TDS rate on a fixed deposit is 10%, let us demonstrate an example to understand the calculation of TDS on a fixed deposit.
- Suppose you have invested a fixed deposit of Rs. 2,00,000 and earn a 10% interest rate in a financial year here is an explanation of how the tax will be calculated on your fixed deposit.
- Interest earned per year – Rs. 20,000
- Your interest earned in an FD will attract 10% TDS, so your bank or NBFC will deduct Rs. 1500 per annum as tax.
- It is noteworthy that resident citizens & senior citizens whose income is below Rs. 2,50,000 and Rs. 5,00,000 respectively can submit Form 15G/Form 15H shall be completely exempted from paying tax.
This is a manual calculation of TDS on a fixed deposit.
TDS Rates for Different Investors
The tax deducted at source rates changes based on the type of investors holding a fixed deposit account. Below is the list;
- NRI (Non-Resident Indian) – NRI investors will draw 30% TDS along with surcharge and CESS on the interest income from their fixed deposit account as per Section 195 of IT Act 1961.
- Indian Citizens – The tax rate on interest earned from a fixed deposit for Indian citizens is 10%. But, this rate applies only if the interest earned exceeds Rs. 5000.
- TDS Rate for Investors without PAN Details - Indian citizens will be liable for a 20% TDS rate if they do not provide PAN card details to banks/NBFCs holding their FD accounts.
How to Apply for TDS/Tax Waiver
Tax waiver is a process through which you can get tax exceptions on your fixed deposit account. Below are a few tips you can follow and apply for a TDS waiver and save your hard-earned money.
- Submit Form 15G or 15H to your bank or NBFC at the beginning of the fiscal year because these forms are a self-declaration that your taxable amount is NIL.
- You can file an ITR (Income Tax Refund) and get a refund if your taxable income is less than Rs. 2,50,000 and your NBFC/bank has made a deduction on your FD.
- Senior citizens are liable to pay 10% TDS on interest earned on FD. However, it is noteworthy that if the total income (including FD interest) is below Rs. 5,00,000 per annum they shall be exempted from paying tax.
However, before you apply for a TDS waiver, you can calculate income tax on FD interest to understand the total taxable amount and then apply accordingly.
Save Taxes on FD with Shriram
Knowing how a tax on a fixed depositis calculated does not make you save taxes; you should invest with the best fixed deposit scheme in India. A corporate fixed deposit from Shriram is one of the best FD schemes in India that offers you several options to save taxes. Besides, as Shriram provides one of the highest interest rates in India of up to 9.40%* p.a., you can earn considerable money as interest and save taxes simultaneously. Book an FD now with Shriram and start your tax-saving journey from today.
To generate the TDS certificate for your current investment with Shriram Finance, please log in to our Customer portal.
FAQs
1. Is a fixed deposit tax-free?
No, a fixed deposit is not tax-free. However, when you book an FD with Shriram and diversify your investment, you can save considerable tax.
2. How much amount of FD interest is tax-free?
A standard fixed deposit from Shriram will allow you claim exemption on the interest amount up to Rs. 5,000 p.a. It is noteworthy that resident citizens & senior citizens whose income is below Rs. 2,50,000 and Rs. 5,00,000 respectively can submit Form 15G/Form 15H shall be completely exempted from paying tax.
3. Is it necessary to show FD interest in ITR?
Yes, showing FD interest in ITR is necessary, if:
If your total income is over and above Rs. 2,50,000
If your looking to claim a tax rebate under Section 80C of Income Tax Act.
If your income from all tax-saving plans (including FD interest) under section 80C totals to Rs. 1,50,000.
4. What happens if I don't show FD interest in ITR?
When you don’t show FD interest amount in the ITR, you will not receive a tax rebate even if the total taxable income is more than Rs. 2,50,000. A 10% TDS is levied on the total interest if PAN details are submitted and 20% TDS shall be levied if PAN details are not submitted.
Key Highlights
- Investors desire to save money but not at the expense of giving away the interest amount gained from the hard-earned investment in the form of taxes.
- A fixed deposit is one of the excellent choices if you want to invest a considerable amount of money and save taxes simultaneously.
- There are many ways to save taxes on your FD investment; You can open a tax-saver FD or submit Form 15H and 15G for your existing fixed deposit accounts.
- Opening a fixed deposit account with Shriram will help you save taxes and reap good returns simultaneously.
