Fixed deposit accounts are one of the most popular choices of investments and securing money. While a fixed deposit does bring in some financial security, it also makes way for several rules that you should follow while opening a fixed deposit. One of such rules revolves around the nature of tax on the interest earned over time on your FDs.
Tax on FD returns
The interest that you earn on your fixed deposit accounts is taxable at the same rate as the rest of your income. If you happen to miss out on the mention of your FDs in your tax returns, then it is highly likely for you to get a notice from the Income Tax Department. To avoid such a situation, you should declare the earnings from your FD under ‘Income from other sources’.
If you happen to deposit a significant bit of money in your FD accounts, then the tax deductions on the amount happen at the source. Besides, the interest earned on the amount will be taxed at the same rate as your income — the income slab where your tax bracket falls. This means that the tax on the interest earned from your fixed deposits can vary from 0 percent to 30 percent. For example, if your salary falls under the 30% income tax bracket, then you will have to pay 30% interest on the income from your fixed deposit accounts. However, if the interest you earn does not exceed Rs 10,000, then you are not liable to pay any tax on the interest earned on your FDs.
How to reduce tax on fixed deposits?
According to Section 194A of the Income Tax Act, the interest accumulated on the principal account, if not more than Rs 10,000, should not be taxed. However, such an acknowledgement cannot be made without adequately filing your source of income. So if you are being taxed with tax Deducted at Source (TDS), then forms 15G/15H are out for your help as they can let your lower down, or eliminate TDS on your fixed deposit.
So if you are under sixty years of age, you can submit the Form 15G to claim lower tax deductions. If you are over sixty years of age — a senior citizen — you have to file form 15H. It is, however, recommended that you submit both of these forms — form 15 G or 15H — at the beginning of the financial year, as the interest once deducted cannot be refunded.
Investing in two bank branches of the same bank won’t help in saving tax either, as banks now count the aggregate on the interest earned throughout bank branches to see if the interest earned has crossed the threshold limit of Rs 10,000.
If you have opted for cumulative option on your FDs to receive the interest earned as a whole at the end of the tenure — at the maturity period — then it is recommended that you declare the interest on the income every year. This is because your bank might be deducting TDS (if applicable in your case — depending on the interest earned) and depositing it under your PAN. An undeclared interest return could lead to a mismatch in the tax credit statement and the return filed by you.
Which FD to go for?
FDs on Finserv MARKETS let you grow on your savings with the security that the principal amount is in safe hands. If your income falls under a high-tax bracket, then it is highly recommended that you get a fixed deposit which provides you with maximum rates of interest on your returns. Fixed deposits on Finserv MARKETS plans to garner an interest rate of up to 8.95 percent and come with other attractive features such as higher interest rates for senior citizens — 0.35 percent more than the regular interest rates. Fixed deposits also allows you to have an account with a minimum deposit of Rs 25,000. It’s a secure investment option, one where you can start investing any time without having to wait to collect a massive sum of money.
A fixed deposit account provides you with a host of features. So if you are a young investor who wants to invest with minimum risk, then you should definitely opt for an FD to maximise your returns, as it has the highest stability ratings with CRISIL’s FAAA/Stable rating and ICRA’s MAAA (stable) rating, so your investments are never at risk.
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