How much tax on fixed deposit interest in India?
In India, fixed deposits (FDs) are a popular investment option for individuals looking to park their money for a fixed period and earn a steady interest. However, it is essential to understand the tax implications associated with fixed deposit interest to make informed financial decisions. This article aims to provide a comprehensive overview of the tax on fixed deposit interest in India.
Fixed Deposit Interest Tax Rate
The tax on fixed deposit interest in India is levied at the rate of 10% for individuals who are not part of the higher tax bracket. This implies that if your total income, including the interest earned from fixed deposits, does not exceed the basic exemption limit, you will be taxed at 10%. However, for individuals who fall under the higher tax brackets, the tax rate can be as high as 30%.
Tax Calculation
The tax on fixed deposit interest is calculated based on the interest earned during the financial year. To determine the tax liability, you need to follow these steps:
1. Calculate the total interest earned from fixed deposits during the financial year.
2. Subtract the interest earned from the basic exemption limit (Rs. 2,500 for the financial year 2020-21).
3. Apply the applicable tax rate to the remaining interest amount.
For instance, if you earn Rs. 30,000 as interest from fixed deposits during the financial year 2020-21, you will need to pay tax on Rs. 27,500 (Rs. 30,000 – Rs. 2,500). Assuming you fall under the 10% tax bracket, your tax liability will be Rs. 2,750 (Rs. 27,500 x 10%).
Income Tax Slabs
It is crucial to consider your income tax slabs while determining the tax on fixed deposit interest. The current income tax slabs in India are as follows:
1. 0% – Rs. 2,50,000
2. 5% – Rs. 2,50,001 to Rs. 5,00,000
3. 20% – Rs. 5,00,001 to Rs. 10,00,000
4. 30% – Above Rs. 10,00,000
If your total income, including fixed deposit interest, falls within the first slab, you will not be taxed on the interest earned. However, if your income exceeds the basic exemption limit, the interest earned from fixed deposits will be taxed accordingly.
Section 80TTA Deduction
The government of India offers a deduction under Section 80TTA for the interest earned from fixed deposits up to Rs. 10,000 per annum. This deduction is available to individuals and Hindu Undivided Families (HUFs). If your interest income from fixed deposits is below Rs. 10,000, you can claim this deduction and pay tax only on the interest amount exceeding Rs. 10,000.
Conclusion
Understanding the tax on fixed deposit interest in India is crucial for making informed financial decisions. By considering your income tax slabs, the Section 80TTA deduction, and the applicable tax rate, you can effectively manage your tax liability and maximize your returns from fixed deposits. Always consult a tax professional or financial advisor for personalized advice based on your specific circumstances.
