How to Avoid TDS on Fixed Deposits??

Fixed deposits (FD) are one of the most favoured investment instruments in India. Fixed deposit can be defined as a financial investment where money is invested for a fixed tenure at a pre-agreed interest rate. Fixed deposit is an all-time favourite financial investment instrument. It provides a handsome return as well as liquidity at the time of need to an investor. Looking at the volatility, high associated risk and less assured return by other financial instruments currently, the attractiveness of fixed deposits is set to grow in the future.

TAXABILITY OF INTEREST EARNED ON FIXED DEPOSITS

The interest earned under an FD is taxable under "income from other sources". The amount invested under 80C of the Income Tax Act is exempt but interest earned under such investments is taxable. If the interest earned under FD exceeds Rs. 10,000 in a financial year, it would be eligible for tax deduction at source (TDS) at 10 per cent plus 3 per cent education cess, therefore a total 10.3 per cent of the interest earned.
For example, if an investor has earned Rs. 20,000 as interest in one year, the bank would deduct Rs. 2,000 and pay only Rs. 18,000 as the amount that exceeds the limit of Rs. 10,000.

TDS is also applicable on the interest accrued. At the end of fiscal year (31^st march), tax is deducted on the interest accrued on fixed deposits even if interest has not been credited/paid. Before filling income tax return always check your 26AS to ensure that tax is deducted and paid by the bank.

NOW, HOW TO SAVE TDS ON FIXED DEPOSITS

Here are four easy ways you can follow to save TDS on FDs:

1.      By submitting Form 15G/15H

 

If an investor submits Form 15G stating that he has no taxable income, the bank would not deduct any TDS on the interest earned. For senior citizens, the requisite form to avoid TDS is 15H.

2.       Distributing FD Investment

      

      

    Another way to avoid TDS is by splitting the deposit into separate banks in such a way that interest earned from any of the FDs does not exceed the Rs. 10,000 limit. However, please  note that this will just avoid your TDS on interest. You still need to include this in your income tax return while filling and you also need to pay taxes on your taxable income according to your income tax slab.

3.       Timing the FD

 

You can also save TDS by timing your FD in such a way that interest for any of the financial years does not exceed Rs. 10,000.

For example, a 12-month fixed deposit of Rs. 1 lakh at 10.5 per cent could be started in September as financial year closes on 31st March. This way, the interest would split in two financial years, and hence TDS will be avoided.

4.     Splitting the FD

 

An individual can start one fixed deposit under his/her personal bank account and another one under an HUF account, and, so, both will be treated as separate. So an investor with an HUF identity can split the corpus under such two heads.

 

This Article has been Shared by Student of ICAI Palak Aggarwal. She can be reached at aggarwal.palak2809@gmail.com

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