How much interest on FD is taxable?
Interest earned on fixed deposits (FDs) is a common source of income for many individuals. However, not all of this interest is tax-free. Understanding how much interest on FD is taxable is crucial for individuals to plan their finances effectively. In this article, we will explore the tax implications of FD interest and provide guidance on how to calculate the taxable amount.
Interest on FDs is taxable under the Income Tax Act, 1961, in India. The taxable amount depends on various factors, including the individual’s total income, the interest rate, and the duration of the FD. Here’s a detailed explanation of how to determine the taxable interest on FDs:
1. Interest Rate: The interest rate on FDs varies from one financial institution to another. The taxable interest is calculated based on the interest rate applicable to the FD at the time of maturity.
2. Duration of FD: The duration of the FD also affects the taxable interest. Generally, the longer the tenure of the FD, the higher the interest earned, and consequently, the higher the taxable interest.
3. Tax Slab: The taxable interest on FDs depends on the individual’s income tax slab. The tax slab determines the percentage of income that is subject to tax. Here’s a brief overview of the tax slabs in India:
– For individuals with an annual income up to Rs. 2.5 lakhs, there is no tax on FD interest.
– For individuals with an annual income between Rs. 2.5 lakhs and Rs. 5 lakhs, the tax rate on FD interest is 10%.
– For individuals with an annual income between Rs. 5 lakhs and Rs. 10 lakhs, the tax rate on FD interest is 20%.
– For individuals with an annual income above Rs. 10 lakhs, the tax rate on FD interest is 30%.
4. Tax Deduction at Source (TDS): Many banks and financial institutions deduct tax at source (TDS) on interest earned on FDs. If TDS is deducted, the individual does not need to pay any additional tax on the interest earned. However, if TDS is not deducted, the individual must file an income tax return and pay the applicable tax on the interest earned.
5. Form 15G/15H: If the interest earned on FDs is less than the taxable limit, individuals can submit Form 15G/15H to avoid TDS. This form is available for individuals below the age of 60 (Form 15G) and individuals above the age of 60 (Form 15H).
To calculate the taxable interest on FDs, follow these steps:
1. Determine the total interest earned on the FD.
2. Subtract the basic exemption limit (if applicable) from the total interest.
3. Calculate the taxable interest based on the applicable tax slab.
4. If TDS is deducted, ensure that the amount deducted matches the calculated taxable interest.
By understanding how much interest on FDs is taxable, individuals can make informed decisions regarding their investments and tax planning. It is advisable to consult a tax professional for personalized advice and assistance.
