The interest income provided from fixed deposits is entirely taxable. Depositors have to add the interest income to their total income, and the taxes will apply to it. This could be seen under the 'Income from Other Sources' section of the Income Tax Return. The tax is then deducted from the depositor’s account when the interest is credited in the depositor’s account. The financial institution should deduct the interest from the depositor’s FD at a fixed interval. If the depositor a FD for 4 years, then the financial institution must deduct the TDS at the end of every year. There are different monthly interest rates on fixed deposit (FD) for different financial institutions.
Calculation of tax on interest income
The interest income has to be added in the total income while mentioning it in the Income Tax Return. Depositors must be aware of the tax slab rate in which they fall. They should match that with the yearly TDS deducted by the financial institution. The work of the Income Tax Department is to adjust the TDS as per your final tax liability.
If there is no deduction of TDS, then also the depositor must add the interest income in their total income and then pay the tax on it. If they keep on waiting for the maturity of FD and pay the tax when the interest is received, then they might end up paying a higher tax amount. Depositor must keep in mind their fixed deposit scheme so that they do not end up paying a higher tax amount.
When to pay the tax on interest income?
If the tax is payable after including the interest income in their total income, then the depositor must pay the tax before 31st March, which is the last day of the financial year. If there is a case where the depositor is receiving a substantial income from interest, then the depositor can pay it quarterly. The monthly interest rates on fixed deposits are an important factor for FDs.
Relation of TDS with FDs
TDS is not deducted
If the interest income from the depositor’s company FD is less than Rs. 5,000 then it won’t be subjected to taxation under Tax Deducted at Source (TDS) as per Income Tax Act 1961
What is the interest of senior citizens from FD?
Senior citizens receive interest income from the savings account, fixed deposits, and recurring deposits. They can avail of an exemption from the income tax of up to Rs. 50,000 every year. This can be done through the amendment of the Finance Act 2018. Senior citizens can take up a fixed deposit scheme to earn highest fd interest rates.
How to claim ITR of TDS?
For filing Income Tax Returns, there are different slabs under which the applications are processed. The ITR process is divided based on two groups:
TDS refund for FD Scheme (Normal)
If an individual does not have a taxable income, it is essential to mention this in the Form 15G as a declaration. In this scenario, no TDS will be deducted from the individual.
TDS refund for FD Scheme (Senior Citizens)
If the depositor is 60 or above and has a fixed deposit account, then the depositor is exempt from tax deductions on Fixed Deposit scheme interest earned up to Rs. 50,000 annually. For any amount exceeding this, in case of no taxable income, the same form of 15G is to be given as a declaration to avoid TDS.