The Tax Implications of Fixed Deposits: What You Need to Know

To have a safe and sound financial future, it is quite important to start investing your hard-earned money at an early stage of life. This helps one to grow wealth exponentially in the long term. 

In India, fixed deposits are considered one of the safes investment instruments as they are typically backed by the government/bank itself. Moreover, investors are more inclined to invest in it due to assured returns as FD interest rate is stable throughout the investment tenure.

What is a fixed deposit?

It is a type of savings account where you put your money for a fixed tenure, typically ranging from a few months to a few years. During this tenure, the money earns interest amount at a fixed rate that is agreed upon when you open the account. 

The rate of interest on this investment is higher than the one offered on a regular savings account. This is because the investor is basically committing to keep the money in the account for a set period. Once the tenure is over, you can either withdraw the money or renew the fixed deposit for another term. 

What are the tax implications of Fixed Deposits?

A Fixed Deposit is always a preferred investment source for people of all ages. They undoubtedly serve as a reliable asset, offering a secure return on investments in the form of interest. However, there are often some doubts regarding the tax laws about FDs in our country. 

According to the Income Tax Act of 1961, the interest amount on FDs is treated as income from other sources and hence, is fully taxable. However, the FD interest earnings are included in the investor’s gross annual income, and the tax liability is estimated following the prevalent tax laws. 

(Tip: Use an FD interest rates calculator before investing your hard-earned money.)

In India, the interest amount earned by the investor on FDs is considered taxable income, which basically means that it is subject to income tax. Therefore, the tax amount you as an investor will have to pay on your fixed deposit interest will depend on your total taxable income for the year and the tax bracket you fall under. 

When are you liable to pay tax on FDs?

From April 2019 onwards, if the interest on FD is more than Rs 40,000, the PAN users would be liable to pay 10% as tax. On the other hand, non-PAN users would pay 20% tax on interest earned. 

Further, this interest earned would be deducted as TDS (Tax Deducted at Source) at the time of credit of annual interest. Keep in mind that the upper limit of Rs 40,000 is not applicable on aggregate earnings but is for individual FDs. 

How to invest in an FD?

Nowadays, there is no need to go anywhere when planning to invest in a fixed deposit. You just need an application on your smartphone, and you are good to go. In my opinion, using the Bajaj Finserv application for the same is one of the best things you can do. It is easy, super convenient and effortless. Moreover, it also offers a fd calculator in the app itself.

  1. Download the app from Play Store/App Store
  2. Sign up by entering your mobile number
  3. On the home page, you’ll see the Investment Bazaar section
  4. Tap on Fixed Deposit
  5. Proceed further as per your suitability/requirements