If you are holding fixed deposits, you could use this calculator to compute:
- tax you need to pay each financial year after accounting for TDS
- advance tax instalments to be paid (if applicable)
This calculator is a spin-off my recurring deposit calculator which was featured in OneMint. The calculator was requested by Anshu and is based on discussions with Praveen Kumar regarding advance tax.
Of all the calculators I have made, RD and FD calculators would rank among the toughest. This is because of the nature of compounding and nature of taxation.
Tax on FDs and Rds:
Almost everyone agrees that tax on FDs should be paid each financial year. However when it comes to RDs some claim it has to be paid each year while others claim that there is a choice: either pay each year or upon maturity.
The source of this confusion is (like always) the kind of information available. According to Indian tax laws, an investor can choose the method of taxation (pay each financial year or on maturity) for certain sources of income. Bemoneyaware has written a wonderful article on this (you could also refer to this livemint article).
In a more recent directive, the tax man explicitly states that tax on cumulative deposits has to be paid on accrual basis (that is each financial year). This automatically includes RDs. I would like to go with this understanding since it the most recent resource I could find on the subject.
Does this mean for non-cumulative FDs (ones which pay out interest periodically) you could choose to pay tax each financial year or upon maturity?! Arguably yes. Nitin Soni a CA is of the view that “In the absence of a specific provision in the IT Act, any income earned in a year is taxable within that year”. This makes sense to me (although it would be comforting to find a source to ratify this statement!).
If I ever hold a RD or FD I will pay tax each financial year simply because it took some doing getting this idea onto Excel!
- There plenty of articles available on the WWW which advice people on how to avoid TDS for FDs. Utter nonsense. Stay away from all of them. Bottom line: FD interest is taxable as per slab. If your slab is 10% then bank does all the work and need not pay any more tax (on FD income!). If it is higher than 10% then you need to compute the difference and pay. This is where this FD calculator will help.
- In general, “no TDS applicable” is nothing more than a sales pitch. It does not mean ‘no tax applicable’.
If you are young and are accumulating wealth there are plenty of tax-friendly ‘debt’ options. There is no need for you to use FDs and break your head about how much tax to pay and when to pay it.
(Day-duration computations are lengthy. So after entering data in each green cell, give a few seconds gap for Excel to complete calculations).
Note: Advance tax is applicable only if the total taxable income from all sources exceeds Rs. 10,000 in a financial year. Here is a good read on the subject.
Why the ‘I’ in the title is there a part II? Coming Soon: Comprehensive Fixed Deposit Calculator – II: Why it’s a dumb idea to invest your money in your spouse’s name!
Buy our New Book!You Can Be Rich With Goal-based Investing A book by P V Subramanyam (subramoney.com) & M Pattabiraman. Hard bound. Price: Rs. 399/- and Kindle Rs. 349/-. Read more about the book and pre-order now!