Like any other source of income, the interest that we earn on our fixed deposits is also subject to income tax computation. With fixed deposits, the tax gets deducted at sources before the amount is credited to your account. Various tax slabs are created by the income tax department as per the income tax computation. Therefore, if the interest amount exceeds the minimum threshold, the tax gets deducted from the amount.
For instance, if the annual income of an individual is Rs 8 lakh, then they will fall in the 15% tax category, as per the income tax law for FY 2020-21. Moreover, if the interest on fixed deposits of the individual is Rs 80,000, then the amount will attract a TDS (Tax Deducted at Source) of Rs 12,200 as per 15% income tax computation and a cess of 0.4%.
The various slabs for the TDS on interest earned from fixed deposits are as follows:
Now that we know the income tax computation slabs on fixed deposits, let us understand what fixed deposits are.
Fixed deposit or FD is essentially a basic savings scheme provided by the bank, where an individual can keep or deposit a particular amount for a stipulated period and receive interest on it. When the deposit completes the stipulated period, it matures, and the individual can withdraw the principal deposit amount along with the earned interest amount. Fixed deposit is generally considered a safe investment scheme, and fixed deposits up to Rs 1 lakh are assured under DIGCI (Deposit Insurance Guarantee Corporation of India).
Let us check out some tax-saving FD options or tax-saving fixed deposit options to save income tax.
Plus, the total annual income and the resultant tax slab will be decided as per the individual. So, you can enjoy a considerable FD tax benefit if you open a fixed deposit in your spouse’s name, if she is a housewife or in your children’s name if they are a student. Since their total annual income will be less than the minimum taxable income limit, they will be exempt from any income tax computation and TDS deductions.
Now, if you equally divide your fixed deposit amount between four different banks, the total interest that you will earn is approximately Rs 7500 in each of the accounts. This amount is less than the minimum limit of Rs 10,000. Thus, no TDs will apply to your interest amount.
If you need further help with TDS on salary calculator and taxable income calculator, then connect with our experts to know more.
Fixed deposits are a safe and secure way of earning some extra money while keeping your money safe with the bank or financial institution. You can also choose the fixed deposit option with the post office, as they are a tax-saving FD. Check your options and invest accordingly in fixed deposits.
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