New Delhi: When it comes to investing money safely in India, most people opt for Fixed Deposits (FDs) due to their secure returns and low risk. However, until now, one of the biggest concerns for FD investors has been the taxation of the interest earned.
In a significant relief, the government has now announced that income from fixed deposits up to ₹50 lakh will not be taxed, providing a much-needed benefit to millions of investors. Let’s delve into the details of this development and understand its implications.
Understanding the New Tax Exemption on Fixed Deposits
Many investors prefer bank fixed deposits as they offer a stable return on investment. However, taxation on the interest income has always been a downside. Under the new tax regime, individuals who have FD investments up to ₹50 lakh will not be required to pay tax on the interest earned. Additionally, if the total income from FD interest does not exceed ₹4 lakh annually, there will be no need to file an Income Tax Return (ITR).
This move is expected to benefit senior citizens and individuals who rely on FD interest as their primary source of income.
Who Can Benefit from This Tax-Free FD Interest?
- Individuals with FD investments up to ₹50 lakh: If your total FD investment does not exceed ₹50 lakh, you are eligible for tax-free interest income.
- Earnings Limited to FD Interest Below ₹4 Lakh Per Year: If your total annual income from FD interest is below ₹4 lakh, you won’t have to pay any tax or file an ITR.
- Senior Citizens and Retirees: This new rule is particularly beneficial for senior citizens who depend on fixed deposits for their post-retirement income.
How to Ensure Tax Exemption on FD Interest?
Under the new rules, individuals earning up to ₹4 lakh in interest from fixed deposits are fully exempt from taxation. To ensure you receive this benefit, follow these steps:
Example Calculation for Better Understanding:
Let’s say you invest ₹50 lakh in a fixed deposit with an annual interest rate of 7.75%. Your yearly earnings from the FD interest would be ₹3,87,500, which is below the ₹4 lakh tax-free limit. As a result, you won’t have to pay any tax on this income.
Avoiding TDS Deductions on FD Interest
One of the biggest concerns for FD investors is Tax Deducted at Source (TDS). Banks automatically deduct TDS from interest payments based on government regulations. However, if your total income comes only from FD interest and remains below ₹4 lakh, you can submit a declaration form to your bank to prevent TDS deductions.
Steps to Avoid TDS Deduction:
- For Senior Citizens (above 60 years): Submit Form 15H to your bank.
- For Individuals Below 60 Years: Submit Form 15G to your bank.
- Submission Timing: These forms should be submitted at the start of each financial year (before April 1) to ensure no TDS deduction on your interest income.
Revised TDS Rules for Fixed Deposits
The government has also revised the TDS exemption limits, making it easier for FD investors to manage their tax obligations. Here’s how the new TDS limits work:
- For Individuals Below 60 Years: TDS will be deducted only if the annual interest income exceeds ₹50,000.
- For Senior Citizens (Above 60 Years): TDS will apply only if the annual interest income exceeds ₹1,00,000.
This update ensures that more FD investors can enjoy tax-free earnings and better financial security.
