Investing in a Fixed Deposit (FD) leads to guaranteed returns without any risk. If you are considering putting your money in FDs, here, we will help you know the taxations associated with it.
What is an FD?
FDs are investment avenues that offer assured returns. The interest that you earn on FD does not depend on the market condition, which makes it a safe investment instrument for everyone. Upon meeting the FD eligibility requirements, you can decide on the investment tenure and let your money accumulate over an extended period.
The income generated from FDs is taxable. Read on to learn about how it is taxed and what kind of relaxations you can get.
Income tax on FDs
Under the taxation rule, interest earned from FDs belongs to the ‘Income from Other Sources’ category, making the returns a part of your total income. Depending on the income tax slab you belong to, you need to pay taxes on returns earned from FDs. When financial institutions pay the interest to your account, they apply Tax Deducted at Source (TDS) on the amount. The TDS application occurs at the end of every financial year and not only when the FDs mature.
TDS is a type of tax that payers have to deduct while crediting specific types of payments in your account; this also includes fixed deposit income. After receiving the money, you have to add it to your total annual income and adjust the TDS against your final tax liability.
How to calculate income tax on FDs
Assume that you have a Mahindra Finance FD of INR 10 lakh and receive 6% interest from it. As your yearly income from the investment is INR 60,000, there will be a TDS application on the amount. The TDS rate officially is 10%, but the government is currently charging only 7.5% until March 31, 2021. However, if you have not submitted your PAN details, the TDS amount will be 20% of your FDs’ returns. Moreover, if your yearly income from FDs is under INR 40,000, TDS will not be applied to the amount. If you are a senior citizen, up to INR 50,000 is tax-free.
If you need to pay additional tax after TDS, complete the process before March 31, 2021. You can download Form 26AS anytime to get detailed information about the TDS.
Although the interest receive from FD is taxable, it is still a useful investment option if you are looking to earn secure and risk-free returns. Mahindra Finance offers high fixed deposit interest rates. Visit its website and invest in an FD now!
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