Tax on Fixed Deposits
You must pay tax on the interest from your fixed deposits at the rate that applies to you along with any other income you may have, such as a salary or professional income. When interest money is earned, even if it may not have been paid, TDS is deducted.
Example: The bank will deduct TDS on interest accrued each year on a FD for 5 years. Therefore, it is advisable to pay your taxes on an annual basis instead of doing it only when the FD matures. Senior citizens, with effect from 1 April 2018, will enjoy an income tax exemption upto Rs 50,000 on the interest income they receive from fixed deposits with banks, post offices etc. under Section 80TTB.
Avoiding TDS on Fixed Deposits
When interest revenue from deposits held across all bank branches combined exceeds Rs. 40,000 in a year (it was Rs. 10,000 prior to FY 2019–20), banks are obligated to deduct tax. If PAN details are accessible, a 10% TDS is subtracted. If the bank does not have your PAN information, the fee is 20%. The Form 26AS contains information on the TDS that was taken from Fixed Deposit Interest.You can avoid tax deduction on fixed deposits if your whole income is below the taxable threshold by giving the bank Forms 15G and 15H and asking them not to deduct any TDS. Form 15G is for everyone else; Form 15H is for seniors (60 years of age or older). These forms are only for locals and people whose taxes total zero. These documents must be turned in at the beginning of the fiscal year. If you failed to submit them, you can still request a refund by completing an income tax return. These documents are only valid for a year. They must be presented annually in order to prevent banks from deducting taxes.
Reporting Fixed Deposit and Recurring Deposits in Your Tax Return
Add up all the interest revenue from your three open FDs and enter it under “Other interest income” if you have that many.
A 10% tax on interest generated would be deducted starting in June 2015 when interest income from all bank branches, including from recurring deposits, exceeds Rs. 10,000 in a fiscal year. The income from other sources section should include the interest earned.
