Life is a progression. You could never stop it with the taxes. How about a Tax-free Fixed Deposit?
Is there a Future in Fixed Deposits?
Investment is the core of the future. Turn your investments into your weapons using Fixed Deposits (FD). FDs are offered not only by banks but also the non-banking financial companies. FDs work for a fixed period. We invest money for a specific period or tenure. When the maturity has been reached, we get back the sum invested with higher interests; the interest rates here are much greater than in a savings account.
Fixed Deposit Deposits also have various names in various countries. However, it is called a term deposit in multiple countries – countries like Canada, Australia, and New Zealand. It works the same as Fixed Deposit, just like the one in India and the United States, which is again similar to the term bond or as it is called in the United Kingdom.
Depending on the bank and economic status, the interest rates are fixed. Some banks require us to create a separate account. The interest rates may vary from 3 to 8 percent (subject to change based on the bank and country). The tenure varies from days to years.
However, we can choose the period and amount to be invested from the options that are available – it will usually range from 7 days to 10 years. As the name says, the money cannot be withdrawn or removed from the account for a fixed period that was predetermined by you.
After the period ends, you will receive the amount as a lump sum which includes the investment and interest given by the bank.
There are many features of a fixed deposit. But, before we dive right into that – you need to know that you must spend money wisely. Let your cash rotate around investments when the world revolves around money.
Let the investments build your future. The future in Fixed Deposits is as safe as a good savings plan.
Note: Please always consult your financial advisor before making any financial decision.
Wondering If Fixed Deposits Are Taxable In India?
According to the Income Tax Act – of 1961, interest on Fixed Deposits is also treated as income from other sources, and hence, it is fully taxable. So, if this is what you were thinking about all along, you can be sure of it now.
But there is the perk of Form 15G and Form 15H – for some tax benefits, which we will talk about later in this article.
The taxes are based on our gross annual income. Similarly, the Fixed Deposit interest earnings are included in our gross yearly income, and the tax liability is estimated, following the prevailing tax laws.
How to check If we are liable to pay Tax on our Fixed Deposit?
Taxes and Conditions change frequently based on our economic conditions and the working of the banks. Always have a PAN account before having a bank account, as it serves as proof and saves us from heavy taxes. However, from April 2019 onwards, if the interest on Fixed Deposit is more than 40,000 rupees, then the PAN users would be liable to pay supposedly 10% tax, and non-PAN users would be responsible for paying 20% tax on the total interest earned.
This interest would be deducted as TDS (Tax deducted at source) at the time of credit of annual interest. The upper limit of 40,000 rupees is not applicable on aggregate earnings but is for the individual Fixed Deposits.
How does Tax Deducted At Source (TDS) on Fixed Deposit work?
The Tax on Fixed Deposit Interest is deducted as Tax Deducted at Source (TDS) at the time of annual interest credit. The bank will automatically charge TDS (Tax Deducted at Source) on the interest earned on your Fixed Deposit in a given year. To distribute the burden of tax payment – the Tax is imposed every year on the interest earned. The issuer deducts the TDS (Tax Deducted at Source) when a claim is made but not when the appeal is received.
However, the total Tax on FD is calculated according to the income tax slab of that particular year.
Can You Avoid Taxes on your FD?
Tax is collected for the welfare of our society. But the Tax is not imposed as a burden on the society. Still, it could become exhaustive and tiresome sometimes; that’s why you can use some perks along the way.
- Tax Deducted at Source (TDS) applies to all the interest income earned in India, including the Fixed Deposits. In every financial year – if the income that is earned by a person through interest exceeds 10,000 rupees, the applicant or the account holder will have to pay the Tax, and it is mandatory. However – if the interest earned is less than Rs. 10,000, the account holder will not have to pay any tax.
- If the interest earned from Fixed Deposits and the total taxable income earned by a person during the financial year is not more than the prescribed taxable limit, you need to submit form 15G or 15H, which is applicable.
Differences between form 15G and 15H – Form 15G is for the public other than senior citizens, while Form 15H is for senior citizens. The applicant for form 15G must be a resident of India for 60 years or less, and their income should not be more than the prescribed tax limit. Form 15H could only be filled by an Indian resident above 60 years of age and must fall below the prescribed tax limit.
- Good Managing skills can save us from taxes by making investments so that it does not exceed 10,000 rupees in one year. For example, one could invest in a one-year Fixed Deposit in the month of October – in such a manner; that the financial year would be split into two as the financial year ends on 31st March. You can save TDS on your investment.
The Bottom Line
A person is liable to pay Tax only when the interest is above ten thousand rupees. On the contrary, the schemes and amounts can change every financial year depending on the societal income. So by avoiding the higher Fixed Deposits, we can avoid paying taxes.