Is FD interest taxable? Let’s understand the tax implications

Are you looking to grow your savings through fixed deposits (FDs) in India but need clarification on the tax implications?

Tax is often seen as a sore point. But you can plan for it in advance with a proper understanding of how it is calculated on your investments.

In this article, we'll help you answer questions such as 'is FD interest taxable?', 'how much tax do you owe on your FD?', 'how is tax calculated on your FD?', and so on.

Types of FDs in India and their taxability

• Standard fixed deposit
  
  A standard FD is a basic term deposit with a fixed interest and term. It offers higher interest rates than savings accounts and can offer tenures of up to 10 years. Standard FD interest is taxable as ordinary income tax. It is added to your gross income and taxed according to the applicable tax slab.
  
  Additionally, the bank implements TDS (tax deducted at source) when the interest is credited to your account. TDS on interest income is charged at 10% on amounts exceeding Rs 40,000. If you do not provide your PAN information to the bank, the TDS rate is increased to 20% for amounts exceeding Rs 40,000.

• Tax-saving fixed deposit
  
  As the name suggests, a tax-saving FD helps you save tax. This is the only type of FD that qualifies for a tax deduction under Section 80C of the Income Tax Act of 1961. The amount can be up to Rs 1.5 lakh p. a. However, such an FD has a lock-in period of 5 years.
  
  While you can claim a tax deduction under Section 80C, you will still be taxed on the fixed deposit's interest income as per the applicable tax slab. The bank will also deduct TDS, as explained above.
• Fixed deposit for senior citizens
  
  Senior citizen FDs can be opened by people over the age of 60. These FDs offer relatively higher interest rates. However, the rest of the features remain the same as a standard FD.
  
  The fixed deposit's interest income is taxed as per the applicable tax slabs, and the bank cuts a 10% TDS on interest income exceeding Rs 50,000 and 20% in the absence of PAN information.

Non-Resident Indian (NRI) fixed deposit
 

NRIs can open two types of FDs – Non-Resident External (NRE) FD and Non-Resident Ordinary (NRO) FD. An NRE FD can be opened with funds earned abroad and remitted into an Indian FD account. An NRO FD can be used to manage revenue earned in India.

An NRE FD is exempt from taxes in India. On the other hand, NRO FD interest is taxable, and TDS along with applicable cess and surcharge is calculated.

How is FD interest taxable? Some case studies

Ms X, aged 30, invests Rs 1 lakh in a standard FD and earns an interest of Rs 8,000 in a financial year. As the interest earned is less than Rs 40,000, there is no TDS deducted. However, the interest earned is added to their income and taxed as per their income tax slab rate. They fall under the income range of Rs 9,00,000 to Rs 12,00,000, with their cumulative income including the FD interest. Hence, they will pay Rs 45,000 + 15% on income over Rs 9,00,000 because standard FD interest is taxable.

Mr Y, aged 65, invests in an FD for senior citizens and earns an interest of Rs 55,000 in a financial year. As the interest earned is more than Rs 50,000, and Mr Y shared their PAN, the bank deducts TDS at 10% as FD interest is taxable for senior citizens too.

Also read: https://www.idfcfirstbank.com/finfirst-blogs/finance/things-to-know-before-you-open-an-fd

Conclusion
 

The answer to the question, 'is FD interest taxable?' is a straight yes. However, the way FDs are taxed can differ based on the type. Now that you know the details, you can invest in IDFC FIRST Bank Fixed Deposits that offer interest rates as high as 8.00% p.a. (subject to change from time to time), and for tenures ranging from 7 days to 10 years.

Disclaimer

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