4 Easy ways to Avoid TDS on Fixed Deposits

When we talk about assured returns on investment, Fixed Deposit is one of the most sought after investment option in India. Fixed Deposit involves depositing of money for a fixed period which is pre-agreed and on the completion of the tenure, you receive the amount that you invested, plus the interest that was accumulated on the amount.

Fixed Deposit is resorted to by many investors majorly because of safety and security of investment. There are varieties of FD schemes that are available in the market today, each one of them is meant for a specific purpose based on need and suitability. Before understanding the ways to avoid tax deduction, it is essential that we understand the types of Fixed Deposits. Here are the types of Fixed Deposits:

Regular Fixed Deposit: Under this type of FD, a tenure is fixed for a period of 1-5 years. The rate of interest is predetermined and the investor can select the tenure based on their needs.

Tax saving Fixed Deposit:tax saving FD is for the investors who are looking to save money by investing to save income tax. However, under this type of Fixed Deposit, it is important that you lock-in your Fixed Deposit for a period of 5 years. The deposited amount cannot be withdrawn until the investment reaches its maturity.

Special Fixed Deposit: A special tenure Fixed Deposit schemes involves special tenure such as 333, 555, 666 days. Under the special FD, the rate of interest is generally high. Such FDs are offered mainly during the festive period.

Now having understood the types of FDs, there are several points that you must consider as well:

  • Interest calculation
  • Interest payout
  • Penalty

Having considered these points, let us move on to understanding tax deduction on FD interest. The interest that your Fixed Deposit investment accumulates is taxable under “income from other sources”. Under 80C of Income Tax Act, the amount invested is exempted from tax but the interest earned is not. Thus, if the interest earned on a Fixed Deposit exceeds the INR 10,000 mark in a financial year that TDS will be applied at 10%.

Keeping that in mind, here is how you save tax deductible at source (TDS) on Fixed Deposits:

Submitting form 15G/15H: If an investor submits the form 15G, stating that he does not have any taxable income, the bank will not deduct TDS from the interest that has been earned on Fixed Deposit. Senior Citizens are required to fill 15H.

Distribute FD Investment: The best and the most sought after way for saving tax is through investing in different sources. Splitting your investment in separate financial institution ensures that your interest earnings do not exceed INR 10,000.

Manage your FD: You can easily save TDS if you systematically plan and manage your FD. It is essential that you select the right time.

Split the FD: Splitting a Fixed Deposit is one of the wisest options when looking forward to exemption from tax. Under this scenario, a depositor must invest into two accounts – one will be his/her personal account and the other will be an HUF account. The benefit of investing your funds in such a way is that they will be treated separately. So, if you have an HUF identity, then you have the option of splitting your Fixed Deposit.

Here were a few ways through which you can save TDS from being charged on the interest. Fixed Deposit is one of the best options when it comes to secured returns. However, it is important to do your research before you choose any financial institution for money investment.

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