Taxation on FD: Before investing in FD, understand all the provisions related to tax so that your real return can be increased to the maximum.
Taxation on FD: Fixed Deposit has been the preferred choice for a long time due to its assured returns and safe investment options. It does not affect the volatility of the market. However, the interest earned from FD has to be taxed, which reduces the actual return. In such a situation, before investing in FD (Fixed Deposits), understand all the provisions related to tax so that your actual returns can be increased to the maximum.
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Tax Provisions Related to FDs
- The interest earned from FD is added to the earnings and then tax is calculated according to the slab rate. In Income Tax Return (ITR), it is shown under the head ‘Income from other sources’.
- If interest is getting more than 40 thousand rupees on FD investment, then the bank deducts tax while depositing it in the account i.e. TDS (Tax Deducted at Source). In case of senior citizens, this limit is Rs 50,000.
- Earnings from FD have to be shown in your income every year in ITR. This means that if you have taken an FD for five years, then even though you will get your money and interest after five years i.e. on the maturity of the FD, but the interest money will have to be shown in the ITR every year. The advantage of this is that if you show the full amount of interest after five years, then you will come in a higher slab.
- If the bank does not deduct TDS as if the interest amount is less than Rs 40 thousand (less than Rs 50 thousand in case of senior citizens) then show it in ITR. It is added to the total income and then tax is calculated accordingly.
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Save tax on FD returns in these three ways
- If your annual income is less than Rs 2.5 lakh then you can file Form 15G/15H. The bank does not deduct TDS after filing Form 15G/Form 15H with the bank.
- Apart from the bank, FD account can also be opened in the post office. Here less TDS is deducted from banks on FD. The interest rate of FD in post offices is low but tax is saved.
- If you have more capital, then instead of depositing it in your name, divide it into several parts and open an FD account in the name of yourself, spouse, parents and children. With this, the amount of interest will be divided and the tax on the income earned will be calculated according to the tax slab of each person.