Fixed Deposit Maturity and Taxation: Planning for Financial Success

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Fixed Deposit Maturity and Taxation:

Offering a combination of security and predictable earnings, Fixed Deposits (FDs) are an important part of many investment portfolios. They have long been a preferred investment avenue for risk-averse individuals seeking stable returns. However, as with any investment, understanding the tax implications is crucial for effective financial planning and maximising returns. 

Read on to understand the various aspects of fixed deposit maturity and taxation in India and know why tax planning is essential for FD investments. 

Importance of tax planning in FD investments

Tax planning plays an important role in enhancing the overall returns from FD investments. By strategically managing tax liabilities, you can optimise your gains and bolster your financial well-being. 

Fixed deposit interest earned is subject to taxation, and without careful planning, a significant portion of the returns may be eroded by taxes. Therefore, it is imperative to leverage fixed deposit tax-saving opportunities and adopt a tax-efficient investment approach.

Interest rates earned on FD and taxability in India

The interest rates earned on fixed deposits vary depending on factors such as the deposit amount, tenure, and prevailing market conditions. While FDs provide attractive interest rates, it’s essential to consider the tax implications on the interest earned. In India, the interest income from FDs is added to your total income and taxed according to your applicable income tax slab rates.

Managing taxes efficiently can help you save more over the long run and get optimised returns to meet your financial goal. Hence, despite paying taxes on your FD returns, you must always look for high interest fixed deposit accounts. Among various options available, INDIE by IndusInd Bank offers one of the best fixed deposits with attractive interest rates and the convenience of opening an account online with no physical documentation. You can also opt for the auto-sweep feature that automatically converts the excess funds in your savings account into an FD and earns higher returns. 

Factors you must consider before investing

  1. Taxation on FD: Interest income from FDs is taxable as per the investor’s income tax slab rates. It is added to their total income and taxed accordingly.
  2. How FD interest is taxed: The interest earned on FDs is considered as “income from other sources” and taxed at the applicable slab rates. This means that higher-income individuals may incur a higher tax liability on their FD earnings.
  3. TDS exemption on FD: Tax Deducted at Source (TDS) is applicable on FD interest if it exceeds Rs 40,000 (Rs 50,000 for senior citizens) in a financial year. However, investors can submit Form 15G or 15H (for senior citizens) to the bank to claim exemption from TDS if their total income is below the taxable limit.
  4. Taxation on joint FDs: In the case of joint FDs, where the investment is made by more than one individual, the interest income is taxed in the hands of the primary account holder unless there is a specific agreement stating otherwise.
  5. Tax-saving FDs: While FD interest is taxable, investors can explore tax-saving FDs offered by banks. These FDs come with a lock-in period of five years and offer tax benefits under section 80C of the Income Tax Act, 1961, allowing investors to claim a deduction of up to Rs 1.5 lakh. This helps reduce investors’ taxable income, thereby reducing their tax liability. 

Conclusion

Understanding the taxation aspects of fixed deposits is important for effective financial planning and wealth management. By considering the tax implications and employing suitable tax-saving strategies, you can mitigate the tax burden of FDs and maximise returns. Another thing that helps you stay on top of your FD investments is utilising online FD app like INDIE. Such apps provide real-time monitoring and account access, making the process of booking and managing FDs seamless.