Use An FD Calculator To Determine The Tax Impact on your Interest Income
The Income Tax on FD Interest
Most interest income is considered taxable. If you earn any kind of interest income, you are liable to pay income tax. You are also required to file tax returns for the same after the tax payment. If not so, you will be liable to pay the penalty.
The Interest income from FD is also fully taxable. It will be included in your total income while calculating income tax and taxed as per the applicable tax slab the investor falls under.
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Also, the TDS will be deducted by the bank @7.5% (reduced in the FY 2020-21), if your income from interest earned is above Rs. 40,000 in a financial year as per Income Tax Act, 1961 under section 194A. This limit is Rs. 50,000 for sr. citizen under Section 80TTB. It is important to know that TDS will be deducted @ 20% if the taxpayer has not furnished his PAN details.
Remember that if the bank has deducted TDS, but you are liable for a lower rate of tax, then you can simply claim the amount back as a refund in your income tax return from your Income Tax Department. For convenience, you can account online federal income tax calculator that enable you to calculate the refund or potential owed amount, which depends on federal tax return 2019 and 2020. In the terms of finance, all the banks figure out TDS at the time the interest is due for the deposit and the not at all when they pay it. That’s the reason why the tax on the interest income should be paid manually and not at the time of the Fixed Deposit (FD) maturity. Also, give a try to federal income tax brackets calculator to find the income tax brackets for recent year.
Saving on TDS
One can submit Form 15G and 15H (as applicable) to save TDS on Interest Income. Form 15H is applicable for sr. citizens of 60 years or older and Form 15G is applicable for everybody else. It is necessary to submit these forms at the beginning of the financial year to ensure that no TDS will be deducted on your interest income.
If your total income does not fall under any income tax slab, then you can take advantage of Form 15 G/H to stop your bank from deducting TDS on the FD interest. In spite of submitting these forms, tax on your FD interest is deducted by the bank, you can file your ITR to claim a refund. If you forgot to submit the form, you need to file an income tax return to claim a refund of TDS.
Interest income from deposits is taxable on an accrual basis. For example you have a cumulative FD for 5 years. Thus, you will receive interest on Fixed Deposit account at the end of five years. But, you are liable to pay tax on the accrued interest every year.
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Use an FD Calculator
A reliable online FD calculator such as the one from Bajaj Finance will help you to calculate the maturity value of an FD, monthly interest easily. You need to enter the principal amount, investor type, rate of interest, tenure of fixed deposit and interest payouts frequency.
As you submit above information, the FD calculator will show you the final maturity value and interest income from your investment with just one click.
You can use the value of FD calculator monthly interest to determine the tax impact on your interest income as discussed above. You can decide to ladder your investments to determine a specific monthly interest payout. Break the deposits into multiple FDs of differing maturities and use the calculator to understand the payout from each FD. You can also avail the multi-deposit facility from Bajaj Finance to invest in multiple FDs with a single payment cheque. If you want to liquidate one FD, you can do so without affecting the returns from other FDs. You can even apply for a loan against one FD and while continue to earn returns on it and all other FDs.
An investor needs to strategize his investment to bring his interest income in a lower tax bracket. As the income falls under the higher slabs, the tax starts affecting the net earnings.
There are various questions we have when we are investing and when we look for answers online they often confuse us even more. Using an online FD calculator helps you answer all the questions at one place. You don’t have to consult anyone while investing. You decide how you want to invest and if it’s convenient for you to manage your investments without the help of any financial advisors.
Don’t have to use complicated formulas
When you use an online FD calculator you don’t have to use complicated formulas to calculate your return on investment. Using compound interest formulas for calculating your interest can be confusing and time-consuming. A fixed deposit interest calculator makes it a matter of a few clicks.
You can easily open an FD account online with a simple application form. Online fixed deposit is gaining traction among investors for various reasons. Mainly because it is convenient to invest from the comfort of your home and also because you can earn additional interest rate benefit (0.10% extra over and above regular FD rates) if you invest online in Company FDs such as Bajaj Finance FD.
FD online calculator makes it convenient for you to invest in a fixed deposit. It is easy to use and helps while making an investment plan to meet your financial goals. You can easily calculate the amount you will receive on maturity, the interest earnings, and the maturity date.
You don’t have to use complicated compound interest formulas to calculate your interest. An FD calculator makes it simple for you to choose the right FD plan in just a few clicks. Also, if you invest in an online fixed deposit with Bajaj Finance, you can earn 0.10% additional interest rate.
Compare FDs conveniently
Comparing different fixed deposit plans can be cumbersome if you try to do it the old way by comparing their interest rates, tenors, liquidity options, etc. However, the same comparison can be done by using an FD calculator in minutes. It not only minimizes your efforts but also helps you to make a decision based on your financial requirements quickly.
Minimizes the errors
Manual FD interest calculation is complex as it depends on the types of fixed deposit you are investing in. The interest of a cumulative FD is compounded quarterly but the interest applicable on a non-cumulative FD depends on the interest payout frequency. On the other hand, while calculating the returns on an FD calculator, you just have to select whether you are interested in cumulative FD or non-cumulative FD and the integrated program will calculate the interest earnings and maturity value automatically. The errors that can be introduced during manual calculation are eliminated and this makes your decision much more accurate and transparent.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at HighlightStory.