Rules for Fixed Deposit Tax Calculation


  • Even if the fixed deposit is taken in the name of a minor child or a non-working spouse, the tax charged on interest income shall be added to the working parent/ spouse’s income and taxed as per slab.
  • Unlike other investment instruments, interest income on fixed deposits is entirely taxable. Banks deduct TDS (tax deducted at source) at the rate of 10% if the income is greater than Rs. 10,000/- for a specific year. This fixed deposit tax rate increases to 20% if PAN details are not provided. However, this limit has been increased to Rs. 40,000/- in Budget 2019.
  • Currently, even if a person has invested in fixed deposits in two separate branches of the same bank; the aggregate interest income is calculated. Based on the fixed deposit tax calculation, an aggregate amount greater than Rs. 10,000/- (now Rs.40,000/-) shall be chargeable to tax.
  • Based on the fixed deposit tax calculator if the bank has deducted TDS on the fixed deposit, the income should be clearly stated in the returns. Also, if as per slab; one is eligible for a 20% or 30% tax slab and TDS of only 10% has been deducted as per the fixed deposit tax calculator, the balance tax should be payable;
  • There is an option when one can opt for a receipt of cumulative interest at the end of the fixed deposit tenure. In such a case, one should declare their fixed deposit income every year and pay TDS. Failure to do so may result in a mismatch in one’s Form 26AS Statement and the income tax returns filed.
  • Though, Section 80C provides for long-term fixed deposit income tax exemption up to Rs.1.50 lacs; interest income earned on fixed deposits is fully taxable.
  • If an individual has a gross income lesser than Rs.2.5 lacs, as per fixed deposit tax calculator, no TDS shall be charged since the income is below the minimum taxable amount. When no tax is payable by an individual, no TDS can be deducted by a bank.
  • Many times, in case of fixed deposit tax calculation, TDS is deducted over the limit. i.e., deducted by the bank in the form of TDS even if the individual doesn’t fall under the income tax slab. To avoid the hassle of additional TDS deduction and refund process from the IT department; one can submit Form 15G and 15H to their banks at the start of the financial year itself.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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