Tax Deduction on Fixed Deposit

Fixed Deposits (FDs) are a popular choice among risk-averse investors aiming to build a long-term corpus. While FDs are one of the most straightforward investment options, most people are unaware of how they are taxed. And if you want your investment to deliver the expected returns, understanding the tax implications is an absolute must.

Let's take a detailed look at tax on Fixed Deposit to help you make informed investment decisions.

Banks offer different types of Fixed Deposits to meet varied customer needs. For instance, there is a 5-Year Tax-Saving Fixed Deposit that is eligible for tax exemption of up to INR 1,50,000 in a financial year under Section 80C of the IT Act.

If you're looking for Fixed Deposit with income tax exemption, Tax-Saving FD can be an excellent choice. AU Small Finance Bank lets you grow your wealth by offering a 5-Year Tax Saving Fixed Deposit investment option wherein you can invest amounts ranging from INR 1000 to a maximum of INR 1.5 lakhs per financial year.

If you invest in a Regular Fixed Deposit and not Tax-Saving Fixed Deposit, the income you generate from the investment is fully taxable. It is added to your taxable income and taxed as per your income tax slab. When filing tax returns, you must report your FD income under the 'Income from Other Sources' head.

According to the latest IT laws, if your FD interest income for the financial year from one bank is below INR50,000, it is TDS (Tax Deducted at Source) exempt.

When you receive interest income on Fixed Deposit that is above INR50,000, before paying the interest income, the bank has to deduct tax. This is called tax deducted at source, and this is paid to the Central Government. TDS (Tax Deducted at Source) is 10% if the FD interest income from one bank is above a certain limit. The TDS is 20% if the account holder does not provide PAN details.

The financial institution will only deduct TDS if the FD interest income exceeds INR50000. The bank will not deduct TDS from your FD income if your income in the financial year is less than INR 4,00,000, i.e., you fall under Nil Tax Liability (after obtaining new tax regime as per section 115BAC of Income tax act). But you'll have to submit Form 15G to claim this deduction.       

If you want to invest in FD, especially if you belong to the NIL income tax slab (after obtaining new tax regime as per section 115BAC of Income tax act), you should know about Form 15G and 15H. You need to submit the forms to the bank (in which you have your FD) to declare that your income from the financial year is.below INR4,00,000 (12,00,000 in case of Sr. citizen submitting form 15H).

If you don't submit the form and the bank deducts TDS, it can be submitted when filing tax returns to claim a TDS refund.

When interest income on Fixed Deposit (for Sr. citizen) is above INR 1,00,000, before paying the interest income, the bank has to deduct tax. This is called tax deducted at source, and this is paid to the Central Government. TDS (Tax Deducted at Source) is 10% if the FD interest income from one bank is above a certain limit. The TDS is 20% if the account holder does not provide PAN details..

• Tax deduction on Fixed Deposits is something every FD investor should know about. The knowledge can help you better manage your taxes and make the right investment decisions.

AU Small Finance Bank offers various types of Fixed Deposits, including Regular FD, 5-Year Tax-Saving FD, and FD with a Sweep-In Facility. Take a look at our FD offerings and apply online or offline to take advantage of highly competitive interest rates and an extensive range of benefits.