NEW DELHI: Fixed deposits (FDs) at banks appeal to many as they are low-risk and provide guaranteed returns. They are popular saving options because they are easy to open and offer quick liquidity. People of all ages consider FDs for savings. FDs are offered for tenors ranging from 7 days to 10 years. The interest rates are decided as per the tenor and vary from bank to bank.
Fixed deposit rates are rising. But returns on FDs are taxable, and so post-tax returns from FD are low.
“As per the Income Tax Act, 1961, the interest earned on fixed deposits is added to the ‘income from other sources’ and is fully taxable. The interest you earn on a fixed deposit is taxable as per your income tax slab. So if the interest rate of the FD is 6%, the post-tax rate would be 4.2% if you fall in the 30%. Therefore, before you choose an FD to park your money, you must calculate the returns you will earn after taxation,” said Adhil Shetty, CEO, Bankbazaar.com
Additionally, if the interest earned is above ₹40,000 for individuals (except senior citizens), banks deduct 10% at source (TDS) when the interest is credited to your account. For senior citizens, the threshold is ₹50,000. So TDS is deducted when the interest is credited and not when the FD matures, added Shetty.
If your interest income from FD is more than ₹40,000, you would also be required to submit your PAN details to your bank. If you submit your PAN, the TDS deducted will be 10% of the total interest earnings. If you do not furnish your PAN, the TDS deducted will be 20%. After this, your earnings would be subject to taxation as per your income tax slab.
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