When and How To Pay Income Tax on Fixed Deposit’s Interest Income?
Nowadays, fixed deposits are all the rage among investors looking to save a little extra on their earnings. With companies now offering attractive fixed deposit interest rates and added benefits for customers on the basis of their loyalty or age, fixed deposits offer the most security in terms of currently available investment options. Additionally, the availability of online account management and attractive rates are just some more of the perks that you can avail from investing in fixed deposits. And when you include the fact that there’s zero volatility and complete independence from market fluctuations, it’s no wonder that fixed deposits have become an indispensable part of a prudent investor’s portfolio.
The question most fixed deposit customers ask now is whether the interest accrued from their deposits is subject to Income tax, and if yes, how and when are you supposed to pay it?
Don’t be one of the 90% of tax payers who go wrong in reporting their interest income
It is important to keep in mind that interest income from fixed deposits is completely subject to tax. In fact, it is coupled with your overall income and taxed at the slab rate fitting this overall income.
Here are a few tips on when and how to pay this interest:
Calculate your payable income tax on fixed deposit interest income with care
It is important to know exactly how much income tax you need to pay on your fixed deposit interest income to avoid future hassles. The process becomes much clearer if you take an example:
- Amish has to pay 20% tax on his overall income. He owns 3 cumulative fixed deposits with an NBFC (non banking financial company). The maturity period on each of them is 3 years @8% annual interest rate and the amount for each deposit is Rs.1,00,000.
- After the first year, he earns a total interest of Rs.24,000. The NBFC subtracts TDS @ 10% on all three FDs which equals Rs.2400.
- Therefore, the TDS deducted is Rs.2400 on a total income on fixed deposits of Rs.24000. This means that out of the total tax Amish pays according to his slab rate (which amounts to Rs.4800), he has to pay a balance tax of Rs.2400.
It is very important to know when to pay income tax on your fixed deposit’s interest income
The due date for paying your tax after adding your interest income to your total income is on or before the 31st of March of the financial year.
- It is of vital importance to remember that if your interest income is greater than Rs.10,000 in a year, your PAN number gets credited with a TDS deduction from the issuer. Unless you mention those details in your tax return, the tax department has the power to charge you with ‘concealment of information’.
Companies like Bajaj Finance have come up with accurate and easy-to-use FD calculators that do all of the above for you online. It’s fast, efficient, and effective.