Understanding the Tax Implication on Fixed Deposits

You can have a host of fixed income yielding securities, most of which are very much taxable. We take a look at select fixed income securities and how they fare when it come to taxation, including TDS that is likely to be deducted.

Company fixed deposits

Interest on company fixed deposits is taxable. If your interest income is more than Rs 5000, the company will cut tax deducted at source (TDS), unless you submit form 15G or 15H. Read more on form 15G/15H here

The interest received from company fixed deposits has to be added to total income for the purpose of determining tax liability.

Bank fixed deposits

Bank deposits like company fixed deposits also attract TDS. However, TDS in the case of bank deposits would be cut only when the interest income exceeds Rs 10,000 and not Rs 5000 like that for banks.

However, if you submit for 15G or 15H as the case maybe, you could save on TDS being deducted. However, you have to add the interest to your total income for the purpose of tax treatment.

PPF

The interest earned on Public Provident Fund (PPF) is tax free. Not only that, it is also free from wealth tax too. It also qualifies for benefits under Sec80C of the Income Tax Act.

Company NCDs

Interest on Company Non Convertible Debentures (NCDs) has to be added to total income for determining tax liability. However, a company does not cut TDS on NCDs held in the demat form. Read more on NCDs here

Tax free bonds

Tax Free Bonds are issued by government owned companies like Indian Railway Finance, National Highways Authority, HUDCO and the like.

The interest income from these instruments is tax free and does not attract tax.

All other instruments, including those of small savings from the post office attract tax. Read more on tax free bonds here

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