Will the interest earned from my FD be added to my income and taxed? If yes, is there any way for me to save tax on the interest I earn on FD? What if I invest in a post office RD instead? How does one get a tax rebate under section 80 TTA? These are undoubtedly the most asked questions by every potential investor who opts for FD as a saving option. Answers to these questions are quite simple and straightforward.
Is the interest earned on FD taxable?
Yes. The interest earned on Fixed Deposits (FD) is taxable if it exceeds a specific limit. In India, that taxable amount is above INR 10,000. So, whenever your interest for a year exceeds this amount, it will be added to your income and hence taxed by the bank with your fixed deposit itself.
Is it possible to save tax on the interest earned on FD?
Although it’s a law for the interest to be taxed, there are multiple ways to save tax on the interest earned.
- Keeping the interest earned low
An effective way to save taxes on your interest is by keeping the deposit amounts low in multiple FDs. This way, the interest shall never exceed the taxable value, and you’ll have it entirely as per the fixed deposit interest rates.
- Keep the timing aligned
Another way to save taxes on interest is to keep the timing synced in a way that it does not complete an entire financial year. This way, the interest earned in a year will be less and hence won’t be taxed.
- The form 15G
If a person’s total income with interest does not account to be taxable, he/she can submit a Form 15G in the bank and demand the taxed amount back.
- 80 C
According to scheme 80 C, if one deposits money in the tax-saving FDs, the interests would be exempted from tax. For example, the Employee Provident Fund or Public Provident Funds.
Is the interest on Recurring Deposits taxable?
No. Interests earned on post office Recurring Deposits and NSC are eligible for tax exemption under the scheme 80C if they do not exceed the amount of INR 40,000 and reinvested up to INR 1.5 lakh in the years.
Tax rebate under 80 TTA
Following are a few salient features of section 80TTA:
- If the interest earned is less than INR 10,000, it shall not be taxed.
- Only individuals or HUF are allowed to avail of this deduction and not the senior citizens.
- If the total income, along with interest, is less than the taxable amount, no tax shall be charged.
- Savings account covered by section 80TTA can be under banks, post offices, and cooperative societies only.
Following was all the information that a potential investor shall know about the tax exemption on interest on multiple savings accounts. The tips listed above are entirely effective and legal to be applied for tax exemption.