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

Under the Income-tax Act as applicable to FY 2024-25 onwards, how is interest earned on a bank fixed deposit taxed in the hands of a resident individual?

Bank fixed deposit interest of a resident individual is taxed under the head Income from other sources at the individual's applicable slab rate. It is a return on deposit, not a capital gain, so special capital gains rates do not apply.

  1. AExempt up to Rs 1 lakh per year for all individuals
  2. BTaxed at a flat 10% irrespective of income
  3. CTaxed as 'Income from other sources' at the individual's slab rateCorrect
  4. DTaxed as capital gains at 12.5%

Explanation

Bank FD interest is a periodic return on a deposit, not a transfer of a capital asset. It is therefore taxed under Income from other sources at the applicable slab rate. Capital gains rates do not apply to interest.

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