Is interest on fixed deposits taxable?

Yes! Interest on fixed deposits is taxable, and is added to your total income of the Financial Year. So, depending on which tax bracket you fall in (based on total income), interest too will be taxed at that rate. If you fall in higher tax bracket, you will obviously end up paying high tax on the interest income. In such a case, you might as well avoid fixed deposits altogether and opt for debt mutual funds. If you are a retiree or otherwise fall in lower tax bracket, your liability may be zero or low.

Note that you are liable to pay tax on fixed deposit interest every financial year, irrespective of when the deposit matures. This is true even if you have not withdrawn the interest from the account. So, if you have a fixed deposit that pays all interest only at the end of the term, you still need to pay tax every year, on the interest that was due to you that year (from your own pocket).


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