Come this time of the year and your mind will be on taxes and how to save finances wisely. Couple that with the newly announced tax exemptions and you have every reason to want to determine your tax liability accurately.
The interim budget 2019 has made way for nil tax payments up to Rs.5 lakhs for resident individuals falling under Section 87A. As a fixed deposit holder, you should know that the interest earned on your deposit is taxable.
However, you can land up saving tax on FD should you fall in the exempted bracket. Using a fixed deposit calculator is a great way to get precise interest figures and thereby determine your tax liability. Let’s take a few examples and understand how much you will pay as tax for FY 2019-2020.
Bank or post office FD
Example #1: Let’s say your gross yearly income is Rs.10 lakhs and you invest an amount of Rs.1.5 lakhs in a tax-saver FD at an FD interest rate of 7% compounded annually.
By feeding in these details into an FD calculator you will get the interest accrued at the end of one year as Rs.10,500. Now let’s look at how this affects the tax you pay.
=> Your interest accrued gets added to your taxable income which now becomes Rs.10,00,000 + Rs.10,500 = Rs.10,10,500.
=> Since this is a tax-saver FD you qualify for a deduction of Rs.1.5 lakhs. Your taxable income now becomes Rs.10,00,500 – Rs.1,50,000 = Rs.8,50,500.
=> This deduction helps you move from the 30% tax slab to the 20% tax slab.
=> As per the calculations for this slab, you pay Rs.87,984 as tax for FY 2019-2020.
=> Note that banks will not cut TDS, as the current interim budget has increased the tax -free interest limit from Rs.10k to Rs.40k
Example #2: Assume that you have an annual salary of Rs.6 lakh and invest Rs.1 lakh in an FD compounded annually and are earning interest at a rate of 8% from it.
Feeding this information into the FD calculator gives you the interest earned at the end of the year. In this case, it is Rs.8,000. Now, let’s compute your tax liability.
a. Your taxable income currently stands at Rs.6,00,000 + Rs.8,000 = Rs.6,08,000.
b. You currently fall under the 20% tax slab and you will land up paying Rs.35,464 as tax.
c. However, if you are eligible for any deductions under Sections 80C, 80G, 80E and the like then you can save even more.
d. Let’s assume that your deduction amount to Rs.1.2 lakhs. Your taxable income now becomes Rs.6,08,000 – Rs.1,20,000 = Rs.4,88,000.
e. You now pay Rs.0 as taxes for FY 19-20!
Non-banking financial institution FD
Example#1: Consider that you invest a sum of Rs.3 lakh in an FD that offers you a 9% interest rate for 3 years. Your annual income is Rs.6 lakhs.
The FD calculator uses these values to quickly compute your interest earned at the end of the year as Rs.27,000. With these figures, let’s take a look at your tax liability
=> Your taxable income stands at Rs.6,00,000 + Rs.27,000 = Rs.6,27,000
=> Since your FD does not qualify for a deduction your taxable income remains the same and you fall in the 20% tax slab.
=> With this taxable income, you will pay Rs.39,416 as tax.
=> However, consider that you have deductions coming in from other sources like 80G, 80E and so on.
=> Should this amount to Rs.1,27,000, your taxable income would become Rs.6,27,000 – Rs.1,27,000 and you would pay Rs.0 as tax!
Example#2: Perhaps you just started working and are looking at making a small investment of Rs.25,000 to start off with. Assume that the NBFC offers you an interest rate of 8.5%. Your annual salary is Rs.4 lakhs
The FD calculator quickly computes that at the end of the year your interest earned would amount to Rs.2,125. Now, take a look at how much tax you need to pay.
=> Your taxable income amounts to Rs.4,00,000 + Rs.2,125 = Rs.4,02,125.
=> Since your taxable income falls under Rs.5 lakhs you are eligible for a full tax rebate and hence pay Rs.0 as taxes!
=>Since interest earned from all NBFCs is less than Rs.5,000 you can avoid any TDS payments as well by simply submitting form 15G/H.
As you plan your finances this financial year, consider this outstanding fixed deposit that offers you high interest rates and other convenient features – Bajaj Finance Fixed Deposit. Here, you can get interest rates as high as 9.10% if you are a senior citizen, 9% if you are an existing customer and 8.75% if you are a first-time FD account holder. Bajaj Finance keeps the security of your finances as a top priority and hence it’s FD comes with stable ICRA and CRISIL ratings.
With this FD, you can tailor your tenor to match your financial strategy by choosing between terms of 12 to 60 months. You also get the option of taking back the interest accrued at maturity or of getting regular payouts all through the investment tenor.
Should your interest earned across all NBFCs be less than Rs.5000 and you fall in the tax exempt bracket, you can claim tax rebate by filling up form 15G/H. Planning your taxes can be done with ease by using the Fixed Deposit calculator.
With just Rs.25,000 required to open an account an effortless online application form available you are just moments away from earning big returns during FY 19-20!