(Updated on 19-Aug-2023)
Fixed Deposits and Recurring Deposits are the most popular financial saving tools in India. It is not an exaggeration to say that most of us might have started the investment plan with an investment in Post office RD or bank Fixed Deposit (FD).Â
The below table gives you an idea about the total outstanding amount (as on Mar 2019) saved in Bank Term Deposits, based on the tenure of the deposits. (This information is sourced from ‘RBI’s statistical data on Indian Households’ Savings’)
If we also consider the deposits made by NRIs in NRE/NRO accounts and deposits held in Post office then the total outstanding amount made as deposits in India can be a very huge figure.
Financial products like RDs and FDs are very simple to understand and invest. But, when it comes to Fixed Deposit Interest Income taxation part, it can be confusing to many of us.
FAQs on Fixed Deposit Interest Income Taxation Rules (FY 2023-24)
In this post, let us understand the most frequently asked questions on tax rules related to interest income on Fixed and Recurring Deposits in India.
FAQ 1 : Is Interest on FDs/RDs taxable for FY 2023-24?
Yes, the interest income earned on bank / post-office Fixed Deposits or Recurring deposits is a taxable income. The interest income is taxable as per individual’s tax slab rate for AY 2024-25. The slab rate is dependent on which type of tax regime you opt for.
FAQ 2 : Where do I need to declare interest on FD/RD in ITR?
You need to declare the interest income under the head ‘Income from other sources’ of your Income Tax Return form.
FAQ 3 : Is TDS applicable on Fixed Deposits & RDs? What is the TDS rate on FD Interest income for AY 2024-25?
TDS is applicable on the interest income earned from Fixed and recurring deposits.
However, there will be no tax deducted at source (TDS) for interest income of up to Rs 40,000 (non-senior citizens). This is applicable for interest earned from banks as well as from post office deposits. This limit has been increased from the FY 2018-19 limit of Rs 10,000.
In case of FDs, banks deduct tax at source at the rate of 10% if the interest income for the year is more than Rs 40,000
Kindly note that ‘no TDS’ does not mean the interest income is non-taxable.
Related Article : Latest TDS Rate Chart AY 2024-25 & Misconceptions on TDS
FAQ 4 : What is the FY 2023-24 TDS limit on Fixed Deposits made by the Senior Citizens?
The government raised the ceiling beyond which TDS is applicable on interest income from Rs 10,000 to Rs 50,000 in case of senior citizens.
This will mean that the bank or the post office will not deduct tax on interest income of up to Rs 50,000 on FDs, RDs, Post office Schemes like MIS, Senior Citizen Savings Scheme, KVP, NSC etc.,
The applicable TDS rate is 10% if the interest income for the year 2023-24 is more than Rs 50,000. TDS is deducted u/s 194A.
FAQ 5 : What is the Income Tax Deduction limit on Savings Bank Deposits for AY 2024-25?
Section 80TTA of Income Tax Act offers deduction on interest income earned from savings bank deposit of up to Rs 10,000 for FY 2023-24 / AY 2024-25.
As per this section, Individuals below age of 60 years can continue to claim deduction up to Rs 10,000 on interest earned from savings account, whether held with a bank (nationalized or co-operative) or post office in a single financial year.
Kindly note Sec 80TTA & Sec 80TTB tax benefits are available under the old tax regime only.
FAQ 6 : What is the Income Tax Deduction limit on Senior Citizen Deposits for AY 2024-25?
For Senior Citizens, the Interest income earned on Fixed Deposits & Recurring Deposits will be exempted till Rs 50,000Â . This deduction can be claimed under new Section 80TTB. However, no deductions under existing 80TTA can be claimed if 80TTB tax benefit has been claimed.
Section 80TTB is applicable on interest income earned on Savings accounts deposits, Fixed Deposits & Recurring Deposits held with Banks, Post offices and Co-operative Banks.
The interest income earned on deposits linked to Post office savings account like Senior citizen Savings Scheme can also be tax exempted up to Rs 50,000 u/s 80TTB.
However, section 80TTB is not be applicable for pension schemes like Pradhan Mantri Vaya Vandana Yojana (PMVVY).
Also, under Section 10(15)(i) of the Income-tax Act, 1961 (Act) for interest earned on post office savings account, an exemption of up to Rs 3,500 for individual account and Rs 7,000 for joint account can be claimed by any individual.
FAQ 7 : Can NRIs claim 80TTB deduction on Fixed Deposits?
Sec 80TTB deduction is available to a senior citizen who is a resident of India as per the Income Tax Act. Thus, senior citizens with non-resident status (NRI) will not be able to claim deduction under section 80TTB.
FAQ 8 : Is interest on NRI Deposits Taxable?
Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax-free and no TDS is levied. Whereas, interest on NRO account is fully taxable and TDS is charged @ 30%.
FAQ 9 : In case of Joint Fixed Deposit Account, who pays tax? What is the Fixed Deposit Interest Income Taxation rule?
In case of joint fixed deposit holders, generally it is the first account holder against whose PAN, bank deducts TDS (if any). The tax liability is calculated on the first applicant’s name only.
FAQ 10 : How to avoid TDS on Fixed Deposits?
Bank fixed deposit investors who are not in the tax bracket can furnish Form 15G/15H to avoid getting the TDS deducted by the bank. If one fails to do so, the person will need to claim the tax refund by filing his/her income tax return
FAQ 11 : Is the fixed deposit interest of minor child or taxable?
The clubbing provisions will be applied and it will be taxable in the hands of parents. It will be added to parent’s income as ‘income from other source’ and taxed as per individual slab rates.
If both the parents are earning then Minor’s FD interest is clubbed with the income of that parent whose income (excluding minor’s income) is higher.
As soon as he/she becomes a major, it is treated as his/her income. Your child is liable to pay the taxes.
FAQ 12 : Can I avoid income tax by investing in FD in my non-working Spouse’s name?
Many people think that they can avoid tax if they invest in the name of their non-working spouse. This is a misconception. If you invest in bank fixed deposits in the name of your spouse (non-working), the interest income will be added to your income and taxed as per your slab.
If you gift some money to your spouse, she/he (working/non-working) invests that in FD/RD then also clubbing of income rules are applicable.
FAQ 13 : Who is liable to pay tax on a deceased person’s FD interest income?
Income tax return of a deceased person can be filed by his / her nominee or legal heir (legal representative).
The legal heir or representative has to calculate the income of the deceased from the start of the year till the date of death and thereby the tax payable on it in the same manner as if the deceased is alive.
If there is any income which is earned on the inherited assets, after the date of death then it is taxable in the hands of legal heir. Legal heir should include this income inherited from the deceased in his own income while filing his/her ITR.
Related article : Nominee Vs Legal Heir : Who will inherit (or) own your Assets?
FAQ 14 : Can I declare Fixed Deposit interest income on maturity instead of every Financial Year?
Theoretically, we can choose when to pay the taxes on FD and RD on maturity, instead of each Financial Year. You may choose whether the interest income should be considered taxable on accrual basis or at the time of actual payment (cash basis) by the bank.
But, once opted (when to pay the taxes) we need to stick to the same method. (Actually in accounting terms these are known as ‘Mercantile’ or ‘Cash’ accounting methods.)
If you have chosen the cumulative option for your fixed deposits to receive the interest at the end of the tenure, it is advisable that you declare the interest income every year, as your bank may be deducting TDS (if any) and depositing under your PAN. If you don’t declare the interest income in your return, it may show mismatch in your 26AS statement (tax credit statement) and return filed by you.
Thus, practically, interest income from fixed deposits is taxed on a year-on-year basis as per the certificates (Form 16a) shared by the bank to avoid any mismatch.
FAQ 15 : I am in 20% tax slab, my Bank has deducted TDS on FD @ 10%, do i need to pay balance tax?
The TDS rate is 10% , whereas your are in the 20% tax slab, in this case you have to pay the differential tax (this can be Advance Tax or Self-Assessment Tax).
If you are not a tax assessee then you can claim the TDS amount as refund by filing your Tax Returns. If you are in 10% tax bracket and the TDS rate is also 10% then there is no need to pay any additional tax.
I hope you find this post informative and useful. Do share your views and comments, cheers!
Continue reading:
- Bank Deposits: Are you aware of this interesting fact?
- What is Negative Real Interest Rate? | How Can Interest Rates Be Negative?
- List of all Popular Investment Options in India – Features & Snapshot
- Lump sum Investment options for Retirees/Senior Citizens | Where to invest my Retiral benefits to get Regular Income?
Income Tax Deductions List FY 2023-24 | Under Old & New Tax Regimes
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net) (Post first published on : 11-November-2019)
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very useful article.
Thanks for sharing
I have a question regarding FD . FD maturity is for 1 year . Internet from FD is taxed . If I want to invest in FD for next , previous year amount + interest from previous year , how will be income tax calculated? since part of FD is precious year’s interest of FD for which tax has been deducted. I am confused here.
I got 18,000 interest on FD in Andhra Bank, but TDS is zero. Should I show nil TDS in Schedule TDS of ITR-2 or is it incorrect to show zero TDS in Schedule TDS? (Of course, this 18,000 is shown in Other Income and tax is paid.)
whether 80TTA OR 80TTB are same i.e 40000/-or 50000 rebate on interest of Saving /Fix deposites f/y 2019-20 example salary 680000/- saving 80 c rs.150000/- interest from bank FDR rs.39000/-.Tax calculation
Dear Vijay,
Section 80 TTA & new Section 80TTB
For Senior Citizens, the Interest income earned on Fixed Deposits & Recurring Deposits (Banks / Post office schemes) will be exempt till Rs 50,000 (FY 2017-18 limit was up to Rs 10,000). This deduction can be claimed under new Section 80TTB. However, no deductions under existing 80TTA can be claimed if 80TTB tax benefit has been claimed (the limit for FY 2017-18 & FY 2018-19 u/s 80TTA is Rs 10,000).
Section 80TTA of Income Tax Act offers deductions on interest income earned from savings bank deposit of up to Rs 10,000. From FY 2018-19, this benefit will not be available for late Income Tax filers.
Proposal has been made to not to deduct TDS of up to Rs 40,000 on interest income from Bank / Post office deposits (the FY 2018-19 TDS threshold limit u/s 194A is Rs 10,000). Kindly note that no TDS does not mean no tax liability. Interest income on Deposits (FDs/RDs) is still a taxable income.
Interest income from deposits held with companies will not benefit under this section. This means, senior citizens will not get this benefit for interest income from corporate fixed deposits us/ 80TTB.
Very informative article.One Query , How bank will know that FD interest is crossing limit of Rs 40000/Normally it is seen that Banks deduct 10& TDS by default
Dear Manoj,
TDS gets deducted if total interest income is more than Rs 40000 in a Financial year. Bank(s) can easily know based on PAN, even if an individual has multiple account with different branches of a bank.
Good and informative Article !! Thanks Sreekanth
Thank you dear Ajay..Keep visiting ReLakhs.com!
All 15 FAQs are very useful,but you have not mentioned Exemption under Section 10 sub section 15 (i), post office earning interest individual 3500/- or joint account 7000/-
Dear ch.venkataRao,
I vaguely remember reading abt Section 10 (15) when I was doing my course on Financial Planning.
But, to be frank, totally forgot about this section when writing this article.
I have now included this in the above article. Thank you!