Interest earned on Fixed Deposits (FDs) is considered as part of your income and is taxed accordingly. Here’s how it works:
1. Income tax slab rates: The interest you earn from FDs is added to your total income and taxed based on the income tax slab you fall under.
2. Tax deducted at source (TDS):
Threshold: If the interest income from FDs in a financial year exceeds INR 50,000 (INR 1,00,000 for senior citizens), the Bank will deduct TDS.
Rate: TDS is deducted at 10%. If you haven't provided your PAN to the bank, TDS may be deducted at 20%.
3. Filing returns: You need to report the interest income from FDs under "Income from Other Sources" while filing your Income Tax Return (ITR).
4. Form 121: If your total income is below the taxable limit, you can submit Form 121 for individuals below 60 years and for senior citizens to the bank to prevent TDS deduction.