Tax on Fixed Deposit Income: Through Tax Saving fixed deposit, which is a popular saving instrument, one can avail the benefit of Section 80C of the Income Tax Act for a deduction of up to Rs 1.5 lakh.
However, on one hand, investors benefit from a tax on deposits up to Rs 1.50 lakh, while investors do not consider that the interest received on fixed deposits is not tax-free.
How does taxation work for earning on fixed deposits
Interest income from fixed income is fully taxable. Annual interest earned from FD is added to your total income, then interest is payable as per tax bracket. This has to be reported in the income tax return under ‘Income from other sources’ i.e. TDS.
Investors except senior citizens, if their interest income from FD is more than Rs 40,000, then banks deduct TDS while crediting the interest in your account. In the case of senior citizens, this limit is Rs 50,000. Keep in mind that TDS is deducted at the time of deposit of interest and not when the FD matures.
How much TDS will be deducted?
As per the Income Tax Act’s section 194A, TDS is deducted on interest earned on FD, If the FD interest income in the financial year is Rs 40,000 and if it exceeds Rs 50,000 (for senior citizens), TDS is deducted at the rate of 10 percent. But, if PAN details are not there then TDS is deducted at the rate of 20 percent from the interest income.
