Understanding Tax on Interest Received from Fixed Deposits: All You Need to Know
In the complex world of Indian taxation, understanding the tax implications of earning interest from fixed deposits is crucial. This article guides you through the necessary steps and provisions to ensure you accurately declare and pay any applicable taxes on your fixed deposit interest.
Tax Liability on Fixed Deposit Interest
Interest earned from fixed deposits (FDs) is taxable and added to your other sources of income. You may have heard that you need to pay a 10% tax on interest received if the total FD interest exceeds Rs 10,000 in a financial year. However, this might not be entirely accurate, especially if your total income is below certain thresholds. Let's break it down.
General Tax Rules for FD Interest
The interest income from fixed deposits is taxable under the head of 'Income From Other Sources' at the applicable slab rate. If your total income is more than Rs 10 lakhs, the tax slab is 30%. The TDS rate on FD interest is 10% for the entire financial year if the interest amount exceeds Rs 10,000. If you do not provide your PAN card, the TDS rate is 20%.
For Senior Citizens
Senior citizens benefit from a higher exemption limit for fixed deposit interest. Interest income from FDs is exempt up to Rs 50,000 per year. Additionally, the TDS threshold for senior citizens is also Rs 50,000. This makes it favorable for those over 60 years of age.
What If You Don't Have Any Other Income Sources?
Assuming that you only have fixed deposit interest as your income and it exceeds Rs 10,000 in a financial year, you still need to check if your total taxable income falls within the exemption limit. Individuals under 60 years of age have no deductions under section 80TTA, which is available for savings interest. Thus, all of your FD income is taxable.
Tax Calculation and Filing Process
Taxes in India are typically calculated on the total income of the taxpayer. The interest income from FDs is a component of this total income. Without knowing your total income, including any other sources, the tax liability on your FD interest cannot be accurately determined.
To simplify the process, if your total taxable income is below Rs 2.5 lakhs and all of your FD income is within this limit, you will not be liable to pay tax. You can submit form 15G to stop TDS deduction at the source. If you don't submit this form, you can claim the TDS back at the time of filing your Income Tax Return (ITR).
If your total taxable income exceeds Rs 2.5 lakhs but does not exceed Rs 5 lakhs, TDS will be deducted at the source, and you will need to file an ITR to claim the refund.
For incomes between Rs 5 lakhs and Rs 10 lakhs, TDS will be deducted at the source, and you will have to pay the balance amount at the time of filing your ITR. For incomes exceeding Rs 10 lakhs, the applicable tax rate is 30%.
Tax Benefits for Senior Citizens
Senior citizens over 60 years of age have additional benefits. They can earn a maximum of Rs 50,000 from FD interest without paying any tax. Additionally, if your total taxable income is not more than Rs 5 lakhs, you can protect yourself from TDS by submitting form 15H.
In addition, the benefit of section 80TTB allows a minimum of Rs 50,000 to be considered from FD and savings account interest incomes. The balance will then be considered for slab rate taxation, which can reduce the tax burden.
Conclusion
Understanding the tax implications of interest earned from fixed deposits is essential, especially given the changing tax laws and thresholds. Whether you are a senior citizen or a younger taxpayer, there are various ways to reduce your tax liability on your fixed deposit interest. Always consult a professional tax advisor to ensure you follow the correct process and accurately file your ITR.
For those looking for more detailed assistance with tax filing and consultancy, reaching out to a chartered accountant (CA) is highly recommended.