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    Tax on Interest on Fixed Deposit/Term Deposit

    Institution Name
    Deposit Amount Range
    Tenure Range
    Interest Rate
    Up to ₹1Cr
    7 Days to 20 Years
    5.25% - 8.75% Quarterly compounding
    Response Time Within 30 minutes
    Up to ₹1Cr
    7 Days to 10 Years
    4% - 7.6% Quarterly compounding
    Response Time Within 30 minutes
    Up to ₹1Cr
    7 Days to 10 Years
    4.25% - 7% Monthly compounding
    Response Time Within 30 minutes
    Up to ₹1Cr
    15 Days to 20 Years
    4.25% - 7.65% Monthly compounding
    Response Time Within 30 minutes
    Up to ₹1Cr
    7 Days to 10 Years
    5.5% - 7.45% Monthly compounding
    Response Time Within 30 minutes
    Up to ₹1Cr
    7 Days to 10 Years
    4% to 8% Monthly compounding
    Response Time Within 30 minutes
    NRI - FD
    Up to ₹1Cr
    1 Year to 5 Years
    6.2% - 7% Monthly compounding
    Response Time Within 30 minutes
    NRI - FD
    Up to ₹1Cr
    1 Year to 10 Years
    7.15% Monthly compounding
    Response Time Within 30 minutes
    NRI - FD
    Up to ₹1Cr
    1 Year to 10 Years
    6.5% - 6.95% Monthly compounding
    Response Time Within 30 minutes
    NRI - FD
    Up to ₹1Cr
    1 Year onwards
    7% - 7.5% Monthly compounding
    Response Time Within 30 minutes
    Up to ₹1Cr
    7 Days to 10 Years
    4% - 7.6% Quarterly compounding
    Response Time Within 30 minutes
    NRI - FD
    Up to ₹1Cr
    1 Year to 5 Years
    7% - 7.1% Quarterly compounding
    Response Time Within 30 minutes
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    Tax on Interest on Fixed Deposit/Term Deposit

    A Term Deposit is one of the most commonly procured investment options as it is relatively risk free and also provides returns. Due to this being a risk free investment option. Also called a Fixed Deposit, this investment option is offered by all banks for their customers. Customers invest a certain amount for a set period during which an interest rate will be added to the money they have invested. The maturity value they receive is based on the maturity period of the deposit. Longer the period of maturity, higher is the interest offered on the investment.

    Although the rate of interest offered on this is not very high such as equity investments, compared to the amount offered on savings account, the rate is higher. Individuals can apply for a term deposit by either visiting their bank or by applying online through their bank’s website. Once they have successfully applied for their fixed deposit, they will receive a fixed deposit receipt which contains all details of their investment such as the tenure they have opted for, interest rate applicable, their personal details, nomination, penalty for prepayment and so on.

    Will tax be deducted from Term Deposit Interest

    Yes, interest accumulated on Fixed Deposits are seen to be financial income and is therefore taxed. Although there are a few exemptions, tax is deducted on the interest earned on a term deposit. Most individuals ignore Fixed Deposits when it comes to declaring their taxes and income for the financial year, but this is a mistake that has to be rectified. Term Deposit income must be looked at as ‘Income from Other Sources’ while tax returns are being filed. Record of TDS payments that are deducted on Fixed Deposits are included in Form 26AS. Individuals must note that Term Deposits are taxed at the rate of their gross income which implies that if they are a part of the 10% tax bracket, they will have to pay a tax of 10% on their income that they receive from their Term Deposit interest.

    What about TDS or Tax Deducted at Source

    Automated tax collection is done by the Income Tax Department in India for a certain limit. In case the income from the individual’s Fixed Deposit account is over Rs.10,000 then tax is deducted at the source. The rest is paid by the individual as self-assessment tax.

    If the individual’s PAN number is available with the bank, then the amount of TDS that is deducted by banks is 10% of the income derived from the interest. In case the individual’s PAN number is not on the bank’s records, then 20% is the TDS on income from Term Deposit Interest. In case the income earned by the individual is below the minimum tax limit, then this TDS on their Term Deposit interest can be recovered at the time of tax filing by claiming a refund. Another option that individuals have is to submit Form 15G which declares that their taxable income is lower than the minimum amount and therefore TDS should not be applicable on their Term Deposit interest.

    Other individuals who have been exempted by the Income Tax Department from TDS are senior citizens. Individuals who fall under tax brackets of 20% or 30% will have to file a separate Self-Assessment Tax which is above the TDS that is being deducted.

    For example, Manish belongs to the tax bracket of 20% and has a Term Deposit of Rs.10,00,000 with a bank that provides an interest of 8% per year. The interest earned on the Term Deposit is Rs.80,000. Manish will also have to pay interest earned on the tax rate equal to the gross income. Therefore, he will have to pay 20% of Rs.80,000 which is Rs.16,000. A TDS of 10% is deducted by the bank on the income earned from interest which is Rs.8,000.

    Hence the balance amount of tax to be paid by Manish as a self-assessment tax will be 16,000-8,000 which is Rs.8,000.

    Can TDS be avoided on Term Deposits

    Yes, there are a few ways through which individuals can avoid TDS on their Term Deposits. These include:

    • Opting for a tax saving Term Deposit option is one way through which individuals can avoid TDS. These options generally have a compulsory lock in period of 5 years and the amount cannot be withdrawn prior to this.
    • Individuals can submit Form 15G claiming that they do not earn a taxable income. Similarly, senior citizens will have to submit Form 15H.
    • Distributing or splitting their term deposit investment so that none of the interest earned exceeds Rs.10,000 is another way to avoid TDS.
    • Individuals can also procure their Term Deposit option in such a way that the interest will be split into 2 financial years, avoiding TDS.

    By following some of the options provided above, individuals can avoid TDS on their Term Deposit interest. Term Deposits are one of the most commonly procured investment options by individuals and offers numerous benefits such as guaranteed returns and they fact that they are a risk free option.

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