23 October 2013
Dear all, Am Syed and i have 18lakhs in hand which am going to get after selling the house. I have decided to make it fixed deposit. And am even planning to take some three Lakhs loan on that fd , my query is that the interest earned on the fd is getting minimized on loan. Do i need to pay tax Saperatly for interest earned. But in this case am not getting any amount in hand as all money is going for loan. And this fd am planning for 1 year or 18 months.
Please help me out. And am not a salaried person. No income earning.
24 July 2024
Based on your situation, here are the key points to consider regarding tax implications on Fixed Deposits (FDs) and the loan against FD:
### Tax on Interest Earned from Fixed Deposit:
1. **Interest Income Taxation:** - Interest earned on Fixed Deposits is taxable as per your income tax slab rates. For non-senior citizens, if your total income including interest income exceeds the basic exemption limit (currently Rs. 2.5 lakhs per annum), you are liable to pay income tax. - Banks deduct TDS (Tax Deducted at Source) at the rate of 10% if the interest income from FDs exceeds Rs. 40,000 in a financial year (increased to Rs. 50,000 from FY 2019-20 for senior citizens).
2. **Tax Deduction at Source (TDS):** - Banks deduct TDS on interest income from FDs at the time of credit or payment of interest, whichever is earlier. If your total income is below the taxable limit, you can submit Form 15G/15H (for individuals below 60 years/above 60 years, respectively) to avoid TDS.
### Loan Against FD:
1. **Reduced Interest Income:** - If you take a loan against your FD, the interest you earn on the FD will decrease by the amount of interest you pay on the loan. This reduces your net interest income.
2. **Tax Implications:** - You are still liable to pay tax on the interest earned from the FD before considering the interest paid on the loan against FD. The interest paid on the loan itself is not deductible against the interest income earned from the FD for tax purposes.
### Practical Considerations:
1. **Cash Flow vs. Taxation:** - Even though you are not receiving any amount in hand due to the loan against FD, you still have to account for the interest income earned on the FD for tax purposes. - Ensure you have sufficient funds to pay any taxes due on the interest income, even if you are using the FD as collateral for a loan.
2. **Duration of FD:** - If you plan to keep the FD for a short period (1 year or 18 months), consider the tax implications and the overall financial strategy regarding your cash flow needs and tax planning.
### Recommendation:
- Consult with a tax advisor or financial planner to get personalized advice based on your specific financial situation. They can help you optimize your tax liabilities while ensuring your financial goals are met effectively.
By understanding these points and seeking professional guidance, you can make informed decisions regarding your Fixed Deposit and loan against FD arrangement.
CAclubindia
