Quite often people invest their savings of money somewhere. One of the modes of investment is FD. People associate their money with good interest for the future by getting it FD done in banks with a perception of safety investment. Before getting it done, it is important to know that income tax is imposed on that also. There are various ways through which your FD will not get taxed, therefore let us know everything related to FD and income tax in this article.
Whenever a consumer goes to the bank for his FD, he considers that the money is completely safe. Many people do not know that they have to pay a very long tax for FD profit as well. Tax is charged on the profit of FD by the government. If you want to make FD, then know these salient features concerning it.
FD is done for secured interest
Fixed deposit is becoming quite populous for investment. People opt for FD just because their money is guaranteed earning an interest amount. This is why people prudently alter their investment patterns. Many people are ignorant of the tax implications of FD. There are a number of types of FD.
How is income tax charged on FDs?
You get really high-interest returns on the FD. The annual return on fixed deposits is counted in your income. If your income falls in the slab of income tax rules, then parallel tax will be applied to your interest as well. Whichever income tax slab you fall under, you will have to pay tax according to that slab. When you file your ITR, it is considered under “Income from Other Sources”.
TDS also cuts interest from FD
TDS also gets cut off on FD. It is if you have gained interest of more than Rs 40 thousand in a year then 10 percent TDS will apply to your income. No TDS applied on interest earned below Rs 40 thousand. For senior citizens, TDS is not applicable to up to Rs 50 thousand interest earned from FD.
No tax shall be imposed on this FD
If you want to get your FD to be tax-exempt, then get a 5-year FD. The 5-year FD is otherwise called tax-saving FD. This FD can be opened at any bank or post office. Under Section 80C of the Income Tax Act, the customer is entitled to benefits based on the five-year FD. And under 80C, you can claim a deduction of 1,50,000 against your total income. The investment to this amount is also tax-free. In case of premature withdrawal before five years, you may lose your bank penalty and will not gain tax benefits either.
