How to pay tax on fixed deposit?

In my opinion, a well-known and established investment strategy in the current financial sector is the fixed deposit. I make a temporary deposit with my respective bank, and after the time period expires, I get a bigger amount back. But the thing is that you have to pay tax on the interest you earn on a fixed deposit. So keep reading to know how to pay income tax on FD.

Do we have to pay tax on fixed deposit?

You must pay all applicable taxes on any interest you get from a fixed deposit, whether it is with a bank, post office, or business. Because typically, the interest you earn on a term deposit like this is subject to taxation. I hope this clears your doubt about ‘do I have to pay income tax on fixed deposit or not’. There are two different ways you have the option to pay the tax:

1) Accrual Basis

You must report the interest benefit and pay the tax regardless if the interest is earned in cash or in your account. This is one of the main methods in how to pay tax on fixed deposit. 

2) Cash Basis

You must pay the tax once your interest is withdrawn or your FD expires. The sole disadvantage is that one of these procedures must be utilised for all FD tax calculations. You cannot modify it after choosing a tax strategy for a certain FD. You must have understood do I have to pay tax on fixed deposit.

What is TDS for a fixed deposit?

Your long-term fixed deposit interest income is completely taxed. If interest income increases the following thresholds, banks will deduct tax at source (TDS) at a rate of 10%.

1. A) If you're under 60 years old: Rs. 40,000.

2. B) If you are above 60 and a senior citizen: Rs. 50,000.

The TDS that was deducted will appear on your Form 26AS, lowering your overall tax obligation. You must exercise caution because TDS is applied to collected interest when filing FD returns on a receipt (cash) basis. Check to see that all TDS from previous years has been transferred over to the year that you are earning interest.

You are now aware of how to pay income tax on FD.