Fixed Deposits (FDs) are stable investment schemes where the investor deposits money for a fixed term at an interest rate that is fixed by the bank. Investors can benefit from a flexible tenure ranging between 7 days and ten years and can start their FD investments with an amount as low as ₹10,000 in the case of reputed banks like IndusInd Bank. The interest you earn on FDs is fixed throughout the tenure and like with most other income, interest on FDs is taxable. However, there are some important things about FD taxation that you should consider when planning your investments.
How does taxation work for an FD?
The interest earned through a fixed depositinvestment is taxable as per the Income Tax Act of 1961. To facilitate efficient tax collection, the bank in question deducts Tax Deducted at Source (TDS) from the interest you earn on your FD investments. You can benefit from an exemption limit on the interest earned through your FDs depending on your annual income and age:
● If the interest you earn from all FDs with a bank does not cross the ₹40,000 per annum mark, the bank does not deduct TDS from your interest earnings. This exemption limit is set at ₹50,000 for senior citizens.
● When the interest you earn from all FDs with a bank exceeds ₹40,000 in a year (₹50,000 for senior citizens), the bank deducts 10% TDS from your interest earnings.
● The bank deducts 20% TDS if you fail to provide PAN information after opening an FD.
● If your total taxable income is below ₹2.5 lakh annually, the TDS deduction is not applicable on the interest you earn from FDs. For this, however, you need to submit Form 15G/15H to the bank to declare that your income is below this limit.
Is it beneficial to invest in FDs?
FDs offer stable returns and pose a lesser risk to investors when compared to other investment schemes. While FD interest is taxable, banks offer tax-saver FDs that help investors save tax under Section 80C of the Income Tax Act. These FDs have a lock-in period of five years. By investing in a tax-saver FD, you can claim a tax deduction of up to ₹1.5 lakh and reduce your taxable income for the financial year.
You can easily book a tax-saver FD in just a few clicks with IndusInd Bank. The entire process is 100% digital and paperless and you can seamlessly book and manage your FDs online.
How do tax-saver FDs help you meet your long-term goals?
Here are the key benefits of opening a tax-saver fixed deposit account:
| Benefit | Description |
|---|---|
| Guaranteed returns | Tax-saver FDs offer guaranteed returns like regular FDs, with the added benefit of tax savings under Section 80C. |
| Tax savings | You can reduce your overall tax liability in a given financial year by investing in a tax-saver FD. |
| High security | These are highly secure fixed deposit schemes that carry negligible risk of default. |
| Convenience | Tax-saver FDs are easy to open and manage, offering a straightforward investment option. |
You can register online for a tax-saver FD directly through your bank’s mobile banking app. IndusInd Bank customers, for instance, can use the IndusMobile app to open tax-saver FDs.
To sum up
The interest earned on fixed deposit investments is subject to TDS based on the annual income and age of the investor. While you cannot do away with tax on FD interest if you call above a certain income threshold, you can reduce your overall tax liability in a given financial year by opening a tax-saver FD Book a tax-saver FD today to save on taxes and earn attractive interest earnings!
