Investors now days have become smarter and looking for investing scheme that will help better with their savings. Traditional investing schemes like fixed deposits are gaining popularity. Since the market is volatile and interest rates too high, everyone wants secure investment plans. Banks like SBI, PNB, State bank of Patiala, axis, HDFC etc. provides quite interest rates on Fixed deposits.
Saving schemes like fixed deposits are more popular because they offer fixed returns over the said time period. FD(s) have become more lucrative after RBI announced cyclic increase in the rates of policy in India. They offer safe area to deposit money, let them sit and enjoy 10-11% return for initial years.
However, each investor needs to pay tax on the return amount of interest earned through fixed deposits in Indian Banks, which depends on the income tax slab of the investor. Till year March 2012, all the interest collected on Fixed deposit was taxable. However, from April 2012 onwards, interest amounted to be Rs. 10,000 annually or below is not taxable.
Where as interest amount above Rs. 10,000, is taxable and tax percentage will depend on your income tax slab. Thus, if an investor is collecting interest of say Rs. 25,000 annually, then Rs. 10,000 is tax free, but remaining Rs. 15,000 is taxable.
Now, if an investor falls in the slab of 30% TDS, then they will have to pay 30% tax on Rs. 15,000. Thus, Rs. 4,500 of tax is to be paid by an investor if they are receiving Rs. 25,000 annually as the interest amount through their fixed deposit.
The tax paid on FD, is on the basis of only one FD account. Say, an investor has three Fixed Deposits, but in different banks or different branches of a bank. The collective amount of interest is Rs. 25,000 annually.
However, no Fixed Deposit account returns interest more than Rs. 10,000 annually, then the investor will not have to pay any tax for Fixed deposit. However, each fixed deposit and income return should be mentioned while filing for the tax payment or return.
TDS on interest received by fixed deposit is to be deducted by the respective bank. The banks are also to provide tax certificates for the amount of tax deducted as per the investors return.
The guidelines given to bank suggest them to deduct tax on all the deposits that return amount over Rs. 10,000 in given financial year. Even if the fixed deposit is done in the name of the minor and the amount of return is over the exempted amount, TDS is deducted. However, the return in this case can be demanded while filing income tax return.
Banks are to deduct the tax on the basis of different criteria. If the individual has submitted Form 15G (Form 15H for senior citizen), then no tax is deducted.
If the individual has submitted their PAN number details with the bank, then the TDS percentage for them is 10%. For those who have not submitted PAN details or any Form 15G/15H, then the percentage is 20%.
Thus, it is important that the investors make smart decisions and park their money in fixed deposits wisely.