Before moving ahead taking about “how to avoid TDS on FD interest”? lets have a look how this investment works. Whenever we think about investing our money safely, the very first investment option that comes to our mind is fixed deposit (FD). Fixed deposit scheme is an investment scheme which allows investors to invest money for a fixed tenure at a pre-defined interest rate. This is one of the most popular and favored investment instrument in India. The key factor which make this investment most popular between investors is the guaranteed fixed interest rate which is usually higher than saving bank account. In fixed deposit scheme, the rate of interest offered depends upon the tenure of investment, longer the tenure higher the rate of interest. Which simply means how much interest investor will earn on his investment directly depends on the tenure of investment he chooses to invest his money for. In fixed deposit ‘fixed’ signifies to tenure/duration of investment as its plays a very important role. The tenure of fixed deposit can be as short as 15 days or as long as 5 years.
There are number of fixed deposit schemes available in the market, investors can choose FD scheme depending on its need and suitability. Here are some popular Fixed Deposit (FD) schemes in India:-
- Regular FD Schemes: This is the basic form of fixed deposit (FD) scheme where issuer offers fixed interest rates against different tenures, which ranges from 1 week to 10 years. Investor can choose to invest in FD for a suitable period.
- Tax Saving FD: As name suggest this FD scheme offers tax saving to its investors. In this scheme invested amount gets locked for 5 years and cannot be withdrawn before maturity.
- Special FD Scheme: As name suggest special FD scheme is specially designed to offer additional benefit to it investors. In this type of FD scheme funds can be invested for a special period like 333 days, 399 days or 555 days, and rate of interest is higher for such schemes.
- RD Scheme: Recurring deposit (RD) scheme is an investment scheme where investors can constantly deposit a fixed amount of money every month for a FD of fixed tenure and at a pre decided interest rate. The corpus keeps on building every month upto the maturity period.
- Floating FD: As name suggest this scheme offers floating interest rate i.e rate of interest which changes with the change in the base rate. In type of investment, tenure remains fixed but interest renewed every time with the change in market rate.
Interest Payout On Fixed Deposit (FD)
Interest payouts on fixed deposit scheme are made after every three months from the date of the deposit. Customer can either choose to reinvest the interest in the FD account i.e cumulative FD or can get the interest amount credited to their saving bank account.i.e simple FD. In cumulative FD, interest is paid with the invested amount on maturity at the end of the term. Interest income from fixed deposit also attracts tax that is why here we are going to discuss how you can avoid TDS on FD interest income.
TDS On FD Interest
As per the income tax law, interest earned from FD scheme is taxable under the head “Income from other sources”. From the financial year 2012-13, the interest earned from bank FD’s would be eligible for TDS only it exceeds Rs 10000 in a financial year. The banks deduct TDS on FD @10% on the interest earned. In case of non submission of PAN Card details to the bank the TDS will be @20%. For example, if an investor has earned Rs 15000 as an interest a financial year, then bank would deduct Rs 1500 and pay only Rs 13500 to the investor. Whereas the interest earned from company FD’s would be eligible for TDS it exceeds Rs 5000 in a financial year.
Avoid TDS On FD Interest :- How To Avoid/Save?
As interest income from bank and company fixed deposits id taxable. Lets have a look what are possible ways which can help you save tax on FD interest income. Saving return on investment is a part of financial planning which every investor should know so that you don’t loose the benefits earned on your investment over a period of time. So lets have a look how you can save or avoid TDS on FD interest income:-
- By Submitting Form 15G/15H: Both are self declaration forms, investor can submit this form in the beginning of the financial year if he is sure that he will not be required to pay tax in that particular year i.e his total taxable income is going to be less than the permissible limits. If this form is submitted by the investor in respect of his deposit, the bank does not deduct tax while paying interest. 15G is for non –senior citizens whereas form 15H is for senior citizens.
- Splitting Fixed Deposit (FD) Investment: Tax liability for TDS deduction on FD interest is calculated at branch level. So investor can create FD in separate bank branches in such a way that interest earned from any of the FD does not exceed Rs 10000.
An investor with HUF identity can split FD using another way too. An HUF can create FD under personal bank account and another FD under HUF account, and then both can be treated separate. So an investor with HUF identity can split FD under such two heads to save TDS.
- Time Fixed Deposit (FD) Investment: Creating FD in between the financial year can help you avoid TDS on FD interest earned. The TDS can also be saved by creating FD in such a way that interest for any of the financial years does not exceed Rs 10000. For example, 1 year FD of Rs 2 Lac @9% could be started in October as the financial year closes on 31st March so the interest would split in two financial years, and hence TDS could be avoided.
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