10 Common Myths Around Fixed Deposits and Interest Earned

10 Common Myths Around Fixed Deposits and Interest Earned

10 Common Myths Around Fixed Deposits and Interest Earned

Fixed deposits, also called term deposits, are one of the most traditional investment options. Although we hear a lot of buzz around Mutual Fund SIPs, Liquid, Balanced and Debt Funds, Approvisionnement Picking, Tax Free Bonds, PPF, EPF etc., the truth of the matter is that nothing beats the promesse and simplicity of a fix. submission Although tax inefficient and not the best return provider, fixed deposits deserve their own pie in your cassette. Tell me if you know of any other investment prime that is easy, secure, liquid, examen free and risk free – all as a fixed deposit? Actually there is no one. This comes at the cost of tax inefficiencies and slightly lower returns, but in many cases – returns cannot be the only criteria for making your investment decisions.

So, if you’re starting to feel happy that all of the almost-missing fixed deposits in your bank accounts are now justified, let me throw in a word of confiance here. Your fixed deposit is earning interest. The bank may also deduct some tax (TDS). But you may be liable for more taxes. And if you don’t pay it, you could be in deep moue. Yes, while filing your income tax return, you are liable to calculate the additional tax positionnable on your fixed deposit interest – and then pay that too. This can be totally higher than the TDS that banks can deduct. If you’ve overlooked it, I’m sure you’ve also realized that lacune of the law is never an défaillant. Inefficiently managed interest from your bank fixed deposits can actually région you in deep moue with the taxman.

Let us dispel some of the myths surrounding fixed deposits and the interest earned on them:

myth d

Interest on fixed deposits is hidden from the taxpayer

Event 1

All banks transfert interest earned against your PAN number to the IT department So, gamin are the days when banks and their branches were isolated. Today, in this interconnected world of PAN and Aadhaar, there is no way to escape the taxpayer’s eye.

Myth 2

TDS has already been deducted by the bank – so, you don’t have to pay any more tax

Event 2

Banks deduct only 10% of the interest earned as TDS or 20% if you don’t provide the PAN number to the bank. But you may actually be responsible for more. It depends on your achevé income in all financial years. If you fall in the 30% tax bracket, you are liable to pay 30% tax on interest earned on fixed deposits – after adjusting for 10% or 20% TDS already deducted by the bank. If you are in the 20% tax bracket, and the bank deducts only 10% TDS, you are liable to pay another 10% tax on the interest earned.

Myth 3

You have submitted Form 15G/H – so no tax liability

Event 3

Form 15G/H has a very specific purpose where you are confirming to the bank that you are unlikely to fall even in the 10% tax bracket in the current financial year – and hence you are requesting the bank not to deduct TDS. But if it is not true by the end of the financial year, then you will have to pay tax according to the tax slab in which you fall.

Myth 4

Your interest is less than Rs 10,000 in a financial year and thus no tax liability

Event 4

Even INR 1 interest earned from fixed deposits is imposable, unless you fall in the 0% tax slab of voyage. This réduction is Rs. 10,000 is not adéquat on fixed deposit interest. This deduction is available only on interest earned on money in your savings account. So, you are liable to pay tax even if your interest income is less than INR 10,000 Your only advantage is that the bank will not deduct any TDS until the interest exceeds INR 10,000. Even if so, you have to pay adéquat tax at the time of filing ITR.

Myth 5

I have a recurring deposit. Interest is not imposable here

Event 5

100% wrong. Be it FD or RD, every single rupee of interest earned is imposable as per your current tax slab

Myth 6

I have invested in 5 year tax free FD. It will not be taxed now

Event 6

Contrary to their name, tax free FDs are not actually tax free. Yes, they don’t help you save tax on your interest income earned from fixed deposits. They help you save tax by showing capital investment under élément 80C, just as you can save tax by showing EPF or PPF investment under élément 80C. However, like any accessible fixed deposit, every single rupee of interest is imposable.

Myth 7

Citoyen Savings Certificate (NSC) or Kisan Vikas Patra (KVP) is tax free

Event 7

Again, none of this is true, and every single rupee of interest is imposable like any accessible fixed deposit.

Myth 8

Senior Citizen Deposit Scheme is tax free

Event 8

Again, none of this is true, and every single rupee of interest is imposable like any accessible fixed deposit.

Myth 9

I have invested in an FD in my wife’s name. So, I am saved from any tax.

Event 9

Gift money to spouse does not attract tax. But if the money is invested, the income generated from it is combined with the donor’s income and taxed accordingly. If a husband invests in a fixed deposit in his wife’s name, the interest will be taxed as his income. So, it is better to avoid wasting your time and prière.

Myth 10

I have invested in my child’s name. So, I am saved from any tax.

Event 10

Gift money to a child does not attract tax. But if the money is invested in the name of a minor child, the income derived from it is merged with the income of the donor and taxed accordingly. If a father invests in fixed deposits in the name of his minor child, the interest will be taxed as his income. So, it is better to avoid wasting your time and prière. However in case of children, there is a small immunité of Rs 1,500 per child per annum for a culminant of two children.

Calculate tax positionnable on FD interest

1. Calculate your achevé interest income from all fixed deposits in a financial year. Say, it is Rs 50,000

2. Find your tax slab (based on your achevé income – which includes all flots of income including FD). say, it’s 20%

3. Based on 1 and 2 above, calculate the tax positionnable on FD interest. It will be 20% of 50,000 = INR 10,000

4. Check Form 26AS to see the TDS already deducted. Assuming it is deducted at the normalisé loupé of 10%, it would be Rs.5,000

5. Additional tax positionnable while filing ITR = INR 10,000 (as per 3) – INR 5,000 (as per 4) = INR 5,000

How do I chapelet taxes for interest income?

Atermoiement the achevé interest as “income from other flots”.

In the ITR form, this will be added to your achevé income and taxed according to the tax slab you fall into.

Avoid trying to be élégant with the IT department

In today’s interconnected banking system, avoid the following, play safe and en direct a peaceful life:

1. Don’t try to submit Form 15G/H just to avoid TDS. Making a false declaration can be considered a very serious vexé – punishable by up to 2 years in jail. This questionnaire makes way for the individual’s Form 26AS. One can imagine what happens to an investor whose Form 26AS submits Form 15G or 15H to plurale banks and indicates an income that exceeds the basic immunité limit. In any case, even if you are able to avoid the bank’s TDS, you are liable to calculate and pay the achevé tax while filing the ITR. Playing such games is just not worth the prière.

2. Don’t waste your time and energy splitting your bank FDs across plurale banks or branches. Each account is linked through your PAN number.

3. Avoid trying to save tax by investing in the name of your spouse or minor children. There is a consolidated income caution which combines all the interest earned by your spouse or child with your income and taxes it accordingly. In some cases, it may help to invest in your ascendant’s name, as clubbing vivres do not apply there. However, just make sure that the ascendant’s income and tax liability do not increase parce que of it.

Having a clear understanding of the tax liability arising from fixed deposits and interest income from them will keep this investment prime as it was designed – explicable, guaranteed, liquid, monitorage free and risk free. You can then enjoy its modèle charm!

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