Tuesday, November 20, 2018

How to use an FD calculator to compute income tax liability?


Fixed deposits in India are still one of the most popular financial instrument. This is because they are considered as one of the safest investment options for retirement or for financial planning as their earnings are not affected by market performance. With company fixed deposits, you earn regular returns and pay tax on an interest earning above Rs.5,000, according to your tax slab. Whether you have invested in fixed deposits or intend to, you must know all the rules of Tax Deducted at Source (TDS) on fixed deposits to ensure you do not pay more than necessary.

The interest earned on your fixed deposit is taxable in your hands under ‘Income from other sources’ head as per the Income Tax Act. The tax rate on fixed deposit will depend on your tax slab, which therefore varies. However, you can prevent your bank from deducting TDS if your income is below the taxable limit and your interest income from fixed deposits does not exceed Rs.5,000, and Rs.50,000 if you are a senior citizen, by submitting Form 15G or Form 15H.

Here is a simple guide to using a fixed deposit calculator to compute your income tax liability.

         What is an FD calculator?

An FD calculator is an instrument that allows you to instantly calculate the amount of interest you will accrue during your tenor, as well as the total amount that you will receive upon fund maturity. You can invest in Fixed Deposits from trusted NBFCs such as Bajaj Finserv to earn interest up to 8.75% on a cumulative FD for a minimum of 36 months. If you are a senior citizen, you can earn interest up to 9.10% on a cumulative FD when you choose a maturity period between 36 and 60 months. You can invest an amount as low as Rs.25,000 and make the most of assured returns.

Using an FD calculator is extremely beneficial as it gives you error-free and instant results. For calculating the interest and maturity amount, you just have to enter the deposit amount, FD tenor, FD interest rate and frequency. The calculator also allows you to calculate interest on cumulative and non-cumulative investment types. In comparison with manual calculators, an online calculator is faster and free of human error.

For example, say you have invested Rs.2,00,000 in a cumulative fixed deposit account at the rate of 8% for 5 years. With the help of FD calculator, you can instantly learn the maturity amount, which is Rs.3,04,212 and Rs.1,04,212 as interest income for 5-year tenor.

         How to use it to calculate your IT liability?

At the end of each financial year, your FD issuer will deduct TDS @10% and you will receive the net amount. When your interest earnings exceed Rs.10,000 for bank fixed deposit and Rs.5,000 for company fixed deposit, the issuer will deduct tax at source. With the help of FD calculator, you can calculate the amount of interest you will earn on your fixed deposit. In case of company fixed deposits, interest up to Rs.5,000 is tax-free. Therefore, if your interest income exceeds Rs.5,000, you will have to pay tax on the remaining amount as per your tax slab.

For example, if you fall under a tax rate of 20% and your interest income is Rs.8,000, then you will have to pay tax on Rs.3,000 at the rate of 20%. Using an FD calculator, know the interest amount that you have to pay tax on and compute your finances accordingly. This can help you avoid paying 10% as base TDS and 20% over that.

Therefore, when you are planning your taxes, use a fixed deposit calculator to know the amount taxable on interest earned. If you don't declare the interest income in your return, it may show a mismatch in your 26AS statement, which is your tax credit statement. You can calculate the amount of tax on the excess interest amount as per your tax slab, which in turn will help you in determining your tax liability.

Author: verified_user