TAX ON FD INTEREST IN INDIA
Many of us who maintain fixed deposits (FDs) in banks do so out of habit, and often neglect to consider the income we earn from them while calculating our income for the year.
This is a fundamental error that can eventually lead to a notice from the Income Tax department.Treat interest from FDs just as you would treat income from any other source. Make sure you declare your FD income conscientiously under "Income from Other Sources" while filing your tax returns. Form 26AS will have a record of all the TDS made on your fixed deposits.
Taxability of Interest Income :
Interest income will be chargeable under Income from Other Sources and there is no special income tax rate for FD interest, but tax is levied as per the taxable slabs of the person earning interest income. So the tax on FD interest is depend on total income earned by taxpayer during that particular year.
TDS Regulations :Banks deduct TDS on interest only if the interest amount of the FD is greater than Rs 10,000 per year.
The rate of TDS deducted by banks is 10 percent on interest income, provided your PAN number is available with the bank. If the bank doesn't have your PAN in its records, TDS is deducted at 20 percent on interest income.
If your total income is below the minimum tax slab (10 percent), the TDS on FD interest, which is deducted by banks, can be recovered by claiming a refund on the TDS amount at the time of tax filing.
Alternately, you can submit "Form 15G/15H" (as may be applicable) to the bank declaring that since your taxable income for the year is below the minimum amount not chargeable to tax , the bank should not deduct TDS on your FD Interest.
Individuals in higher tax brackets (20 percent or 30 percent) need to pay Self-Assessment Tax over and above the TDS deducted on their interest income.
It is advisable to invest amount in Tax Saving FD instead of Regular FD. An additional benefit of a tax-saving FD over a regular FD is that the original amount you invest in a tax saver FD can be claimed as a deduction under Section 80C subject to a lock in period of 5 years. The interest income on such FDs is subject to the same tax rules as any other regular FD.