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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Debt Products

Ms. Iyer, in the 30% slab, holds a bank fixed deposit that earns interest of Rs 80,000 in a year. Ignoring surcharge and cess, which statement about the tax on this interest is correct?

FD interest is taxed under Income from Other Sources at the investor's slab rate, here 30%, giving Rs 24,000 on Rs 80,000. Any TDS deducted by the bank is merely credited against this liability.

  1. AIt is taxed at 12.5% as it is a long-term debt instrument
  2. BIt is fully exempt if the deposit exceeds one year
  3. CIt is taxed at 30% under the head Income from Other Sources, and TDS may already have been deductedCorrect
  4. DIt is taxed as capital gains because the deposit is a capital asset

Explanation

Bank FD interest is income from other sources taxed at slab rate, giving 30% x 80,000 = Rs 24,000. TDS by the bank is only an advance credit against the final liability, not a separate tax treatment.

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