Tax Implications on FDs with Monthly Interest Payouts: All You Need to Know
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Since Fixed Deposits (FD) offer guaranteed returns, they are one of the most popular investment avenues. Apart from getting returns when the investment matures, you can choose to receive the payout at certain intervals.
Monthly payouts can be ideal for you to address recurring or monthly living expenses. Knowing tax implications on these gains will help you get an estimate of the actual returns you stand to earn.
Guide to Tax Implications on an FD Investment
As per the I-T Act of 1961, the interest you earn on an FD falls under the 'Income from Other Sources' header. Here are a few things to note:
- Interest from an FD is fully taxable if your interest earnings exceed ₹40,000 in a financial year
- Under Section 80TTB of the aforementioned act, the tax exemption limit on FD interest for senior citizens is ₹50,000
- A 10% Tax Deducted at Source (TDS) applies to your annual interest earnings
- The TDS on the monthly interest earned on an FD will be taxed at a rate of 20% if you do not provide your PAN details
- In the case of Non-resident Ordinary (NRO) Fixed Deposits, the TDS on interest income will be applicable at 30%
Usually, issuers deduct TDS from your annual interest income while depositing it in your account. However, if your bank does not deduct TDS, you will be liable to pay tax on the interest income from FD as per your income tax slab rates.
You can compute your tax liabilities on the monthly interest on an FD in this way.
- Multiply your monthly interest by 12 to get your annual earnings
- If it exceeds the exemption limit, add it to your taxable income
- Determine the tax liability based on the applicable income tax slab
Guide to Saving Taxes on Fixed Deposits
There are smart ways to minimise your tax liability on the interest income earned from an FD. Here is how:
Exemption of TDS on FDs
Under the old tax regime, if your total income for a financial year is below ₹2.5 Lakhs, you do not have to pay taxes on the FD interest. To enjoy these deductions, submit Forms 15G (regular investors) and 15H (senior citizens) every financial year.
However, if your bank deducts TDS from annual interest earnings, you can get a refund at the time of filing an Income Tax Return. The no-tax limit for senior citizens under the old regime is ₹3 Lakhs. The basic exemption limit under the new tax regime is ₹3 Lakhs.
Tax-Saving Fixed Deposits
You can also save tax by investing in a tax-saving FD that comes with a lock-in period of 5 years. As these come with flexible payout options, you can earn monthly interest on your fixed deposit. Section 80C of the Income Tax Act of 1961 allows you to claim deductions of up to ₹1.50 Lakhs in a financial year.
If you are looking to invest in FDs that offer high returns and tax benefits, you can compare multiple issuers on the financial marketplace like Bajaj Markets and book an FD easily online.
Familiarising yourself with tax applicability on FDs with monthly interest payout options allows you to maximise your returns while keeping your tax liabilities in control. You can also consider investing in FDs with inherent tax benefits to reduce your overall liabilities.
Conclusion
Fixed Deposits (FDs) are a popular investment choice due to their guaranteed returns and flexible payout options. Understanding the tax implications is crucial to accurately estimate your actual earnings. Interest from FDs is fully taxable, but there are exemptions and deductions available, especially for senior citizens.
Submitting Forms 15G/15H can help avoid TDS if your income is below the exemption limit. Additionally, tax-saving FDs with a lock-in period of 5 years offer deductions under Section 80C. By leveraging these options, you can effectively manage your tax liabilities and maximize your returns from FD investments.
Disclaimer: No Business Standard Journalist was involved in creation of this content
Topics : Tax benefits
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First Published: May 29 2024 | 12:36 PM IST
