Now You need to pay tax on that FD

Ever thought you might have to pay tax on income you are yet to receive? You are, and in your favourite instrument - the good old bank fixed deposit - at that.

In bank FDs, one has to pay tax on the interest earned at the end of a financial year even if the interest would be paid at a later date, or maybe years later.

Suppose you have made an FD of Rs 50,000 for four years. You will have to pay tax on the liable interest for all the financial years it spans, even though the interest amount would come into your hands only at the end of the four-year tenure.

Says Tarun Ghia, chartered accountant, TMG & Associates, “If the tenure of the FD is more than one year, the interest is accrued every year, whether received or not.” According to him, one needs to pay tax on the interest accrued in advance.

The interest earned on FD is added to the individual’s income and taxed according to the slab the individual falls into. So, if you have earned interest income of Rs30,000 in a given year, that amount would be added to your income and taxed accordingly.

For a person whose income is above Rs1.25 lakh, the tax would work out to 10%. This would be added to your income each year, even though you haven’t yet received the interest in your hands. Effectively, therefore, interest should be calculated yearly.

The FD interest is also reinvested at regular intervals - quarterly, half-yearly or yearly. This is called compounding of interest, a phenomenon that helps grow your money further.

As a result of compounding, Ghia says, “Even if the interest during the entire term of the FD is 8% per annum, the interest for the first year will not be equal to that in the second year because of the cumulative effect.”

Also, if the interest on a particular fixed deposit exceeds Rs10,000, you would be liable to tax deduction at source (TDS), which is applicable per financial year.

The bank will compute your interest and will deduct an amount equivalent to the tax, if any, by making adjustments in the FD amount.
You can submit the TDS certificate or amount while submitting returns to ensure that tax is not deducted twice on the same income. If the bank has not intimated you about the TDS, please enquire with them about it. See The Link Below For more Informatiom of tax saving (Right click and open the window in new tab)

Understanding Section 80c
Learn how to save tax by taking benifit of Section 80c
www.moneybhai-investors

Best Tax Savings ELSS
Save Your Tax using Equity-Linked Saving Scheme
www.best-tax-savings-elss

Save Tax On Investing
See Tax saving Investment list
www.save-tax-on-investing