In the case of FD, investors are confident that their money will be completely safe in it. But do you know that the government collects tax from you on the income from FD? If you also invest in fixed deposits then you should know about it.
Fixed Deposit (FD) has been a popular investment option for years. In this, by investing money for a fixed time, investors get guaranteed interest. In the case of FD, investors are confident that their money will be completely safe in it. But do you know that the government collects tax from you on the income from FD? If you also invest in fixed deposits then you should know about it.
This is how tax collection is done
Whatever interest you get annually on FD is added to your annual income. If your income comes under the ambit of tax, then after adding this income, you will have to pay whatever tax is calculated as per the slab rate. While filing ITR, this income from FD interest is included in Income from Other Sources.
TDS is deducted if you earn more than Rs 40,000
There are also rules for deducting TDS on FD. If you have earned more than Rs 40,000 from FD interest in a year, then the bank deducts 10 percent TDS from you even before crediting the interest to the account. However, if you earn up to Rs 40,000 from FD in a year, TDS will not be deducted. Whereas for senior citizens, TDS is not levied on earnings up to Rs 50 thousand from FD in a year.
5 year FD tax free
If you want to avail tax benefits then 5 year FD is useful for you. 5 year FD is known as tax saving FD. You will get this option from bank to post office. In 5 year FD you get the benefit of Section 80C of the Income Tax Act. Under Section 80C, you can claim a deduction of Rs 1.5 lakh from your total income. Investment up to Rs 1,50,000 in every financial year will be completely tax free. But if you break your FD before 5 years, the bank not only charges you a penalty but you also do not get tax benefits.
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