FD Tax Rules: Tax saving is an important part of financial planning, and many investment options can help with this. If you are looking for a low-risk investment option for your portfolio, consider fixed deposits (FDs). They are low-risk investments that offer assured and stable returns. Fixed deposits are suitable for different term goals and help reduce the risk in your portfolio. However, like any other investment, FDs are also subject to certain tax rules that can impact your final returns. Understanding these tax rules can help you decide if FDs are right for you and avoid unexpected tax liabilities.
Income Tax on Interest
The interest income from fixed deposits falls under “Income from Other Sources.” This income is added to your total taxable income and taxed according to the applicable tax slab. For example, if you fall into the 20% tax slab and receive Rs 55,000 in interest from an FD, this interest will be added to your total taxable income, and you will have to pay 20% tax on it.
Tax Deducted at Source (TDS)
If your interest income from an FD exceeds Rs 40,000 in a financial year, banks and financial institutions will deduct tax at source (TDS) on the interest. For senior citizens, this limit is Rs 50,000. If you provide your PAN number to the bank, the TDS rate is usually 10%. However, if your total taxable income is less than the taxable limit, you can avoid the TDS deduction. In this case, individuals under 60 years of age should submit Form 15G, while senior citizens must submit Form 15H.
Tax on Premature Withdrawal
Premature withdrawal from FDs usually attracts a penalty, and the interest income on it will be taxed according to your tax slab. The penalty imposed on premature withdrawal can reduce your total interest income, but this penalty is not tax-deductible.
Tax on Interest from Tax-Saving FDs
Tax-saving FDs are eligible for tax exemption under Section 80C of the Income Tax Act, of 1961. Under this provision, investments up to Rs 1.5 lakh in such FDs can be exempted from taxable income, thus reducing your tax liability. However, the interest earned from these FDs is taxable, and if it exceeds Rs 40,000, TDS is applicable.
When investing in FDs, it is important to understand the tax implications for your investment. If you are planning to open an FD, be sure to check the interest rates offered by leading private banks.
Banks and Fixed Deposit Interest Rates (1-2 Year Tenure)
- RBL Bank: 8.10%
- Bandhan Bank: 8.05%
- DCB Bank: 8.05%
- IndusInd Bank: 7.99%
- Yes Bank: 7.75%
- TNSC Bank: 7.75%
- IDFC First Bank: 7.75%
- Catholic Syrian Bank: 7.75%
- Tamilnad Mercantile Bank: 7.50%
- Karur Vysya Bank: 7.50%
Data compiled by BankBazaar.com. The data is current as of 13 December 2024 on the respective banks’ websites. For each tenure range, the maximum interest rate offered has been considered. The interest rate is for normal fixed deposits of less than ₹1 crore.
(Disclaimer: Times Bull is not responsible for any financial investment decisions made based on this information.)