Fixed Deposit returns: How much monthly income can be earned on an FD of Rs 5 lakh, how much tax is deducted on the interest, and how beneficial is this investment in times of inflation. Learn how to make the right decision with complete calculations.
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Fixed Deposit returns: Inflation silently impacts your wallet every month, reducing the value of your money. Therefore, it’s crucial to invest your money wisely. The stock market, mutual funds, and gold are popular investment instruments. However, they carry risks and unguaranteed returns. This is why many people prefer fixed deposits (FDs). Even those investing in the stock market, mutual funds, and gold keep some in FDs for diversification.
Let’s explore how much money you’ll actually receive each month if you open an FD of Rs 5 lakh, how much tax will be deducted, and whether this is a wise decision in today’s times.
How much will you earn on an FD of Rs 5 lakh?
If you make a fixed deposit of ₹5 lakh with a bank or post office, your earnings depend entirely on the interest rate and the term of the FD. Currently, most banks offer annual interest rates of approximately 6.5% to 7.5% for the general public. Senior citizens typically receive 0.50% more.
Suppose your FD earns 7% annual interest. This translates to an annual interest rate of approximately ₹35,000 on ₹5 lakh. Divided monthly, the average monthly income is approximately ₹2,900. Many banks also offer the option of receiving monthly interest, but the total interest may be slightly lower.
How much tax is payable on FD interest?
The interest earned on FDs is taxable. It is added to your annual income and taxed according to the tax slab you fall in.
If your total taxable income exceeds a certain limit, the bank also deducts TDS on the interest. For general investors, TDS is deducted on interest earned above ₹40,000 annually, while for senior citizens, the limit is ₹50,000.
For example, if you are in the 5% tax slab and earn ₹35,000 interest annually from FDs, you will have to pay approximately ₹1,750 in tax. In such a situation, after tax deduction, your net annual income remains around Rs 33,250, that is, the actual income is around Rs 2,770 every month.
