According to recent reports, flexi-deposit holders face a 10% TDS rate that covers less than a third of their total tax liability in the 30% slab. This tax structure creates a significant gap between the TDS collected and the actual tax obligation, requiring careful planning for investors. The tax rules governing these deposits have become increasingly complex, making it essential for investors to understand the complete framework.
As reported, interest earned on flexi-deposits is taxed as income from other sources under the Income Tax Act. This classification means the interest is taxed at the investor's applicable tax slab rate, with no separate TDS deduction applicable on the interest component. The interest taxation follows standard income tax rules, ensuring consistency with other investment income sources.
According to the tax rules, TDS is deducted at 10% on interest income from flexi-deposits, but this rate covers less than a third of the total tax liability in the 30% slab. The TDS threshold is set at ₹50,000 for individuals below 60 years and ₹1,00,000 for senior citizens (60+), applying separately to each bank where deposits are held rather than cumulatively across all deposits nationally. For higher-income earners, the TDS rate increases to 20% for interest income above ₹50 lakh.
As reported, deductions are available under Section 80C for investments in tax-saving instruments such as ELSS funds, PPF, and NPS. Additionally, deductions under Section 24 are available for home loan interest payments. These deductions can significantly reduce the overall tax liability, making them crucial for flexi-deposit investors to understand and utilize effectively.
