Does your investment portfolio include a few Fixed Deposit accounts? These savings instruments, while a great choice, are not tax-free. You can use an FD Calculator to compute the interest amount you earn. Then, you can pay taxes on them, according to your tax slab.
Fixed Deposit and Tax Liability
Fixed Deposit interest earnings are not tax-free. Even the interest earnings on tax-saver FDs are liable for taxation. On a tax-saving Fixed Deposit, only the original principal amount deposited qualifies for tax deduction under Section 80C of the IT Act. Use Fixed Deposit Calculator to compute the interest earnings and your tax liability on them.
TDS on Fixed Deposits
In banks, If your annual interest earnings exceed Rs.10,000, it qualifies for TDS. In NBFC or Corporate FDs, TDS is done on annual interest earnings above Rs.5000.
These rules apply only for TDS. Let’s say your interest earning is below Rs.5000 per year. You’ll still have to declare the earnings under ‘Income from Other Sources.’ The amount will be added to your total taxable income.
Apart from this, keep in mind that the TDS done by banks and other financial institutions are just 10% of the earnings. If you have not submitted PAN information, they may do a 20% TDS. Be sure you submit your PAN details to the bank or NBFC where you have your deposits.
Interest Earnings And Tax Slabs
The basic tax slab requires just 10% tax on any income, including interest earnings. However, if you belong to a higher tax slab, then in addition to the 10% TDS, you have to calculate the extra tax you owe and pay it as self-assessment tax. You can use online FD calculator tools for this purpose.
For instance, if you have earned a total of Rs.15,000 on all your Fixed Deposit accounts with a bank, the bank will carry out a 10% TDS.
- 10% of 15,000 = 1500
- If your tax slab is 20%, you still owe another 10%, that is Rs.1500 as self-assessment tax
- If your tax slab is 30%, you owe Rs.3000 as self-assessment tax, over and above the TDS of Rs. 1500
Can You Avoid TDS?
If your total earnings for the year, including interest earnings, is less than the tax-free slab for your age, you can avoid TDS. You have to submit the relevant form – Form 15G or Form 15H.
Let us say you earn a total of Rs.2 lakhs as total annual income, including interest income. You are below 60 years of age. The tax-free slab for those below 60 years is Rs.2.5 lakhs for the current financial year. So, if you had submitted PAN card and Form 15G at the beginning of the financial year, the bank would not have done a TDS on your interest earnings.
Let us assume you are 61 years of age. Your total earning for the year after adding interest income is Rs. 2.5 lakhs. The tax-free slab for senior citizens (60 to 79) is Rs.3 lakhs for the current financial year. So, if you had submitted PAN card and Form 15H at the beginning of the financial year, the bank would not have done a TDS on your interest earnings.
For very senior citizens (80 and above), the tax-free slab is Rs. 5 lakhs, so if your total annual earnings are below this amount, submitting Form 15H would help you avoid TDS too.
If you belong to the above categories, submit the relevant forms to avoid TDS. This involves submitting tax returns and then waiting for tax refunds.
If you belong to any taxable slab, the TDS is a convenience. If you are at the basic slab, the bank takes care of the entire tax liability on your interest earnings. For those in higher slabs, part of your tax on interest income is automatically paid. So, take advantage of TDS.
Advance Tax Liability
If your total tax liability for the current Financial Year is expected to be above Rs.10,000, then you need to pay Advance Tax on estimated income.
You have to pay at least 15% of Advance Tax Liability by 15th June
Reduce the tax amount you have already paid by June 16 from the total Advance Tax Liability. On the remaining amount, you have to pay at least 45% of Advance Tax Due by September 15
Deduct the tax paid previously if any, from your Advance Tax Liability. On the remaining amount, you need to pay at least 75% percent of tax owed by December 15
By 15th of March, you have to have paid the full tax amount owed
Remember to always include interest earnings from FDs and RDs when you compute your total income. You have to include these under the head of Income from Other Sources. If you are in a taxable slab, the TDS is a convenience. Compute any extra tax you may owe and pay it as self-assessment tax. If you are below the tax-free slab, submit the relevant forms to avoid TDS.