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.
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