Fixed Deposit Taxation How Much FD Interest is Tax Free

August 30, 2024

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The popularity of Fixed Deposit (FD) schemes relies on their ability to generate fixed returns over a sustained period. These returns, however, are taxed at source, which can lower your earnings. You can apply for an exemption on the Tax Deducted at Source (TDS) if you belong to specific income brackets identified by the Income Tax department.

How Does Fixed Deposit Taxation Work?

Did you know that the interest you earn from your fixed deposit account is combined with your annual income to calculate your total tax liability? Yes, the interest earned from FDs is taxable. The Income Tax (IT) department first determines your tax slab rate based on your total annual income. Interest earned from FDs gets categorized as “income earned from other sources” by the IT authorities, which is why TDS is applicable on that interest. Hence, banks deduct TDS from your FD interest before they transfer it to your account.

Key Points to Note About Fixed Deposit Taxation

Here are key points you must know about FD taxation:

If the customer’s overall income is below ₹2.5 lakh annually, TDS is not deducted from their FD interest earnings.
Customers can submit Forms 15G and 15H to save money on TDS
If the income earned by a customer through FDs is less than ₹40,000 annually (₹50,000 for senior citizens), it is exempt from TDS.
However, if the interest income exceeds this threshold in a year, the investor must pay 10% TDS. The rate of TDS is 20% for those investors who have not provided their PAN.

Getting a TDS waiver on an FD

You can get a TDS waiver on interest earned through FDs by submitting two important forms – Form 15H and Form 15G.

Form 15G is for individuals below 60 years while Form 15H is for senior citizens (60 years and above). When you submit the relevant form to the bank, it serves as a declaration that your total annual income is below the taxable limit, making you eligible for the TDS waiver.

Here are the annual income exemption limits for different age groups:

₹2.5 lakh for individuals below 60 years
₹3 lakh for senior citizens aged 60 to 79
₹5 lakh for those aged 80 or above

You can reduce your tax burden in some other ways. For instance, you can invest in a tax-saving FD to leverage the tax deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961. While TDS is still applicable on the interest earned on tax-saver FDs, the tax benefits from such a deduction can lower your overall tax liability for the financial year.

You can easily book a tax-saving FD online in a few simple steps with IndusInd Bank. Enjoy a 100% digital process for booking your FD online along with competitive interest rates. IndusInd Bank Fixed Deposits also help customers benefit from flexible FD tenures and other features like auto-renewal.

To Sum Up

Being aware of the taxation of FD interest can help you calculate your tax-adjusted earnings before opening the FD. You can use an online FD interest calculator to calculate these returns in advance. Interest income up to ₹40,000 annually (₹50,000 for senior citizens) is exempt from tax.

Additionally, you can submit Form 15H (Form 15G for senior citizens) to the bank if your annual income falls below the taxable limit. Also, ensure that your PAN is linked to your bank account to avoid a higher TDS rate.