FD Update: Now you will have to pay this much tax on the income from FD, know 3 ways to save..
To invest money, investors look for low-risk and high-interest investment options. In such a situation, there is no better option than a Fixed Deposit (FD). Nowadays, from youth to senior citizens, everyone likes to invest in FD because their money is completely safe in FD. But at the same time, this question arises in the minds of many people that tax is deducted on the interest earned on fixed deposits (FD). Interest earnings from FD are fully taxable. It is added to your total income and tax is calculated at the slab rates applicable to your total income. So today in this article we are going to tell you some such ways by which you can save tax on the income from FD.
It is shown in your Income Tax Return (ITR) under the 'Income from Other Sources' head. After that the Income Tax Department deducts tax. But if you want, you can easily save this deduction.
Let us first know when and how much tax the bank deducts. If you are not a senior citizen and have taken a fixed deposit as a normal depositor and the interest amount is more than Rs 40,000, then the bank deducts tax at source while depositing the interest in your account. In the case of a senior citizen, this limit is Rs 50,000. That is, if a senior citizen earns interest up to Rs 50,000 on FD, then the Income Tax Department will not deduct any tax. The interest earned after this will be fully taxable.
So it should be remembered that TDS is deducted at the time of interest deposit and not when the fixed deposit matures. In such a situation, if you have a fixed deposit (FD) for 3 years, the bank will deduct TDS at the end of each year. When the fixed deposit (FD) matures, the depositor gets both interest and principal. Additionally, fixed deposits up to Rs 5 lakh are insured by DIGCI. That is, if the bank sinks, the depositor will get Rs 5 lakh as a guarantee from DGCI.
How is tax calculated on FD-
The income from fixed deposit (FD) is added to your total income every year in the income tax return. Even if you do not get the interest money that year and the bank gives the money by adding it together on the maturity of the FD, you have to show it in the ITR every year. Banks deduct TDS from you which the Income Tax Department adjusts later.
If the bank does not deduct TDS on the interest of FD, then the interest income is added to your total income, and tax is calculated accordingly. Always keep in mind to show the interest income every year in ITR, and not wait for the fixed deposit to mature. A large amount will come to your account on maturity of the fixed deposit, due to which you will come in a higher tax slab. If you show minimum interest every year, you will be included in the lower slab of tax.
You can save tax in these 3 ways-
If your total income for the year is less than ₹2.5 lakh, then you can file or use Form 15G/15H. The interest income from fixed deposits is less than 2.5 lakhs, so this income will not come under the purview of tax. By filing Form 15G/15H, the bank will not deduct TDS. In such a situation, you will not be forced to pay any income tax on the interest of FD.
You can open your FD in a post office instead of a bank. Tax is also deducted on post office FD, but not as much as in banks. The interest rate of FD in post offices is low, but you can save tax.
You can deposit money in fixed deposit (FD) in the name of your spouse, parents, and children. Tax on interest earnings from FDs is calculated for each individual based on the slab they fall into. It may be possible to save or reduce tax if you open FDs in different branches and banks.
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