The actual interest earned on Tax Saving FD is much higher than normal FD. You can simply understand this fact with the help of following example of investing Rs 10,000 in a tax saving fixed deposit offering 5% to 6% interest rate per year by three investors having tax slabs of 10%, 20% and 30%.
Interest earned on the tax saver fixed deposits is fully taxable. Total interest earned shall be taxed as per the tax slabs of the investors between 5% and 30%. Banks deduct TDS at 10% when the interest earned is above Rs 40,000, prior to Budget 2019, the limit of TDS on interest income was Rs. 10,000. When the depositor does not provide the PAN details, TDS is deducted by the bank at 20% rate.
For senior citizens, the limit of exemption of interest income is increased from Rs 10,000 to Rs 50,000 in the Budget 2019 on deposits with banks and post offices. No TDS will be deducted for senior citizens, unless it crosses the new limit of Rs 50,000 in a financial year under section 80TTB of the Income Tax Act.
This interest income should be shown under the head "Income from Other Sources" while filing your Income Tax Returns.
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