Fact Check: Are returns from fixed deposits taxable?

Are Returns from Fixed Deposits Taxable?

The claim in question is whether returns from fixed deposits (FDs) are taxable. This topic is particularly relevant for individuals considering fixed deposits as a safe investment option, as taxation can significantly impact net returns.

What We Know

Taxation of FD Interest: Interest earned from fixed deposits is generally considered taxable income in India. According to ClearTax, all interest income from FDs must be disclosed while filing income tax returns, and it is subject to taxation based on the individual's income tax slab 1.
TDS Implications: Tax Deducted at Source (TDS) is applicable on FD interest. If the interest earned exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), banks are required to deduct TDS at a rate of 10% 2 3. This serves as an advance payment of income tax.
Tax-Free Accounts: Certain types of accounts, such as Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts, offer tax-free interest. However, interest earned on Non-Resident Ordinary (NRO) accounts is fully taxable, and TDS is charged at 30% 2.
Tax-Saving Fixed Deposits: There are specific fixed deposit schemes, such as the 5-year tax-saving FD, which allow for tax deductions under Section 80C of the Income Tax Act. However, the interest earned on these deposits is still taxable 6 9.
Senior Citizens Benefits: Senior citizens may benefit from a higher exemption limit for TDS, but they are still required to pay tax on the interest earned 1 5.

Analysis

The sources consulted provide a consistent view that interest earned from fixed deposits is taxable. However, the reliability of these sources varies:

ClearTax and ReLakhs are both well-regarded financial advisory platforms that provide detailed insights into tax regulations and have a reputation for accuracy in financial matters. They are likely to be credible sources for understanding taxation on fixed deposits 1 2.
Tax2win offers a comprehensive guide on the implications of FD interest taxation and appears to be a reliable source, though it is important to note that it is a commercial entity that may have a vested interest in promoting tax-related services 3.
Bajaj Finserv and Wintwealth also provide useful information regarding TDS and tax implications, but like Tax2win, they are commercial entities, which may introduce a bias towards promoting their financial products 4 5.
The Airtel blog discusses tax-saving fixed deposits but is less focused on the core question of taxation on regular FDs, which may dilute its relevance 6.
IndiaFirst Life provides a straightforward explanation of TDS on FD interest, which is helpful, but it is essential to consider that it is an insurance company, which may lead to potential bias in promoting financial products 7.

In evaluating the evidence, it is clear that while the general consensus is that FD interest is taxable, the nuances of TDS and exemptions for senior citizens add complexity to the discussion.

Additional information that would be helpful includes specific case studies or examples of how these tax rules apply in practice, as well as insights into any recent changes in tax legislation that could affect FD interest taxation.

Conclusion

Verdict: True

The evidence consistently indicates that returns from fixed deposits are indeed taxable. Interest earned from FDs is classified as taxable income and must be reported in income tax returns, with TDS applicable under certain conditions. Key sources, including ClearTax and ReLakhs, affirm this understanding, providing a reliable basis for the conclusion.

However, it is important to note that while the general rule applies, there are nuances, such as exemptions for senior citizens and specific tax-saving fixed deposit schemes that may alter the tax implications for certain individuals.

Moreover, the information available may not encompass all recent legislative changes or individual circumstances that could affect taxation. Therefore, readers should remain aware of these limitations and consider consulting a tax professional for personalized advice.

As always, it is advisable for readers to critically evaluate the information presented and seek out additional sources when making financial decisions.

Sources

ClearTax. "Tax on FD Interest: How to Pay Income Tax on Fixed Deposit." ClearTax
ReLakhs. "Fixed Deposit Interest Income Taxation for FY 2023-24 / AY '24-25." ReLakhs
Tax2win. "Demystifying Income Tax on Fixed Deposit Interest." Tax2win
Bajaj Finserv. "TDS on FD Interest - How Much Tax is Deducted on FD." Bajaj Finserv
Wintwealth. "Tax on FD interest: How to pay taxes on the interest received from." Wintwealth
Airtel. "Are Returns from Fixed Deposits Fully Tax-Free?" Airtel
IndiaFirst Life. "TDS on Fixed Deposits Explained: Rates, Exemptions & Refunds." IndiaFirst Life
ClearTax. "Fixed Deposits: Tax Saving FD for Sec 80C Deductions." ClearTax
IndusInd Bank. "Fixed Deposit Tax Deduction Available under Section 80C." IndusInd Bank
HDFC Bank. "Tax Saver FD - Five Years Tax Saving Fixed Deposit." HDFC Bank