Understanding the tax implications of Fixed Deposits (FDs) is crucial for financial stability. Interest income on FDs is taxable based on your income tax slab, categorised as "Income from Other Sources." If the total interest income exceeds ₹40,000 in a year, Tax Deducted at Source (TDS) applies. This limit is ₹50,000 for senior citizens. However, the maturity amount is tax-free as tax is paid on the accrued interest annually. To minimise tax, consider measures like Tax-Saver FDs, spreading investments, opting for Senior Citizen FDs, etc. Wise investment strategies can secure financial stability while minimising tax liability.
FD interest is taxable based on your income slab, categorised as "Income from Other Sources" in tax returns
TDS applies if total interest exceeds ₹40,000, deducted at 10%, adjustable against annual tax liability
Maturity amount is tax-free, having already paid tax on accrued interest yearly. No deductions occur when receiving principal along with interest at maturity
Opt for Tax-Saver FDs with a 5-year lock-in, providing up to ₹1.5 Lakh deduction under Section 80C
Spread FDs across institutions to keep interest income per FD below the TDS limit (₹40,000 or ₹50,000)
Invest in family members' names to leverage their lower tax slabs, reducing overall tax on interest income
Senior citizens enjoy higher interest rates and specific tax benefits, making them an attractive option for this age group
Opt for cumulative FDs to accumulate interest, taxed as a lump sum at maturity, providing potential tax benefits