How to Avoid TDS in Fixed Deposits?

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How to Avoid TDS in Fixed Deposits

Saving taxes is one of the significant reasons to invest money in any investment scheme, of course, second next to getting attractive returns on investment. If you have invested your money in a fixed deposit scheme, then you would definitely not like when banks pay out interest on the fixed deposits by cutting TDS. Well, if you are thinking about ways to avoid TDS on fd, then there are legal ways to do that. 

Understanding about different types of Fixed Deposits: Fixed Deposits are investment instruments that are offered by public/ private sector banks, post offices and corporates. 

Bank Regular Fixed Deposits: Fixed Deposits offered by banks are available for a tenure ranging from 7 days to 10 years. Investors can deposit lump-sum money by opening an FD account and can get attractive returns on the amount deposited at the end of tenure.

  • The rate of returns are not affected by market rates and are determined by the bank as per the RBI policy.
  • Investors can get returns at a fixed rate of return throughout the tenure.
  • There are, however, no tax benefits under regular Fixed Deposits.
  • Fixed Deposits offered by the bank does not provide liquidity and thus cannot be withdrawn prematurely. Investors can, however, take a loan against FD without breaking an FD.

Tax-Saver Fixed Deposits: A tax-saver fixed deposit is a type of fixed deposit offered by a bank in which investors can get tax deductions on their investment. Under Sec 80 C of the Income Tax Act, you can get tax deductions upto Rs. 1.5 Lakhs on your investment.

  • A tax-saver FD is available for a tenure of 5 years.
  • Investors cannot take a loan against tax-saver FD.
  • You cannot open tax-saver FD in rural or co-operative banks.

Flexi- Fixed Deposits: A Flexi-fixed deposit is a type of fixed deposit that provides the benefit of both fixed deposits and savings accounts. Thus, it can provide liquidity along with attractive FD rates.

Recurring Deposits: RD or Recurring Deposits allows investors to deposit a fixed amount every month at FD rates and also get TDS benefits on their investments.

Here are ways to avoid TDS on Bank Fixed Deposits: You can save taxes on your Fixed Deposits in the following ways:

  1. By submitting Form 15 G/15 H- Investors can submit Form 15 G to the bank stating that they do not have taxable income. Senior Citizens can submit Form 15 H for the same.
  2. By investing in multiple banks: Instead of depositing the entire amount in a single FD with a single lender investors can split their FD into multiple FDs. It can thus help to avoid TDS.
  3. By timing the investment of FD: If you plan your investment in such a way that the Interest earned on the investment does not exceed Rs. 10,000 in a financial year then you can avoid TDS on the investment. For instance, if you deposit money in your FD account in September for one year, then the investment would be spread in 2 financial years. Thus, you can avoid TDS.
  4. By spreading investment in different entities: Another way to avoid taxes or TDS is to deposit some money from a savings account, and the portion of deposits can be invested as part of the Hindu Undivided Family. Thus, if you spread your money across different entities in such a way that the Interest earned from deposits does not exceed Rs. 10,000 you can avoid TDS.

Conclusion: Thus, it is essential to plan your investments as per your financial goal. If you want to save taxes and invest for a specified longer period, then you can invest in a tax-saver FD, and otherwise, you can invest in regular FD.

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