A fixed deposit (FD) investment instrument is one of the safest ways to get guaranteed returns. The government considers the returns earned from FDs as income from other sources, and you have to pay tax on them. Read on to learn more about FDs and the Tax Deducted at Source (TDS) associated with them.
FDs are savings and investment avenues that offer a secure way to keep your money and earn interest from it. You have to invest in FDs for a fixed period to gain regular interest payouts. On maturity, you can withdraw your principal investment and the returns.
The Deposit Insurance and Credit Guarantee Corporation (DICGC) guarantees FDs valued up to INR 5 lakh, safeguarding your investment.
What you need to know about TDS on FDs
The first thing you need to know is that the government taxes the income from FD depending on your tax slab. If your yearly earnings from an FD is INR 1 lakh and you have a total annual income of INR 10 lakh, you need to pay 30% income tax and 4% cess. Hence, the payable tax on the interest of INR 1 lakh will be INR 31,200.
For anyone earning over INR 40,000 from FDs, the TDS is 10% of the income, which the issuer deducts while paying the yearly interest. However, if your bank account and PAN Card are not linked, the TDS will be 20% of the income. The limit is INR 50,000 for senior citizens.
The TDS is 30% for income from NRO (Non-Resident Ordinary) FDs. However, if you invest in FCNR (Foreign Currency Non-Resident) or NRE (Non-Resident External) FDs, the income will be tax-exempt.
If you belong to a lower tax bracket, but a financial institution still charges TDS Fixed Deposit, you can claim a refund while filing your income tax return. However, if you belong to the 20% or 30% tax bracket and the TDS is 10%, you have to pay a self-assessment tax over the TDS charged during filing. The TDS calculation is done when fixed deposit interest rates are due each year. So, you have to pay the TDS annually, not just on the FD’s maturity.
Now that you understand FDs and the associated taxation, it will be easier to invest more wisely. Check the FD eligibility criteria on Mahindra Finance’s website. The financial institution offers many options in tenures. So, you can invest your hard-earned money as per your convenience. Visit the issuer’s website now and start an FD at the earliest.