How to Avoid TDS on your FD

Arwind Sharma By Arwind Sharma, 12th Feb 2018 | Follow this author | RSS Feed
Posted in Wikinut>Business>Investment

Increase monetary gains from your FD investment by cutting down on the tax you pay. Curious? Take a look at how you can save on TDS payments on your next fixed deposit.

Avoid Tax Deductions at Source on Fixed Deposit

Financial planning will always hold you in good stead. Saving on TDS or tax deducted at source is an important way for you to do this. This involves limiting your tax liability to the bare minimum as a tax is levied on all earnings, whether it is salary, interest, commission, or royalty. While you must never skip paying taxes, there are measures that you can take to reduce the amount that you are liable to pay.

The interest earned on a fixed deposit is taxable as ‘income from other sources’. According to this, if the interest income exceeds Rs. 10,000 per year, it is liable for tax deductions. The interest income that exceeds Rs. 5,000 for company deposits is liable for tax deductions.

Here are a few simple ways in which you can avoid TDS on your fixed deposit investment.

Split your Fixed Deposits

TDS is applicable if your interest income exceeds Rs. 5,000. This amount refers to the total earnings from all FDs in your name. So, it is a smart idea to make FDs in the name of your minor child or non-working spouse. You could also do this by splitting the money from one FD into different FD into separate banks.

For example, if you are investing Rs. 60,000 in a corporate FD in your name, you will earn an interest of Rs. 6,000 at the rate of 10%. This is more than Rs. 5,000, which is the tax-free limit and hence will be eligible for TDS. But, if you split the corpus of Rs. 60,000 into two FDs of Rs. 30,000 - one in your name and the other in your spouse’s, you can save on tax. The interest earned on each FD will be Rs. 3,000 and so, it will not be liable for TDS.

Time your Fixed Deposits

TDS is calculated on earnings accrued in one financial year. While you’re used to the year commencing in January and ending in December, the financial year starts in April and ends in March. Thus, if you time your fixed deposit correctly, you can avoid paying TDS on it. For example, a corporate FD of Rs. 80,000 is liable for TDS since your earning will be around Rs. 8,000. But, if you start your FD in September or October, the interest income gets split over two financial years and becomes the interest becomes tax-free.

Opt for a Mix of Fixed Deposits

Another simple way to reduce your TDS burden is to split your corpus between corporate and bank FDs. This way, you will be able to enjoy a higher interest income that will be liable for any tax deduction.

Submit Relevant Forms

In order to save tax deductions on your interest income from FDs, you can either submit Form 15G, provided your total income is lower than the taxable bracket. Senior citizens will have to submit Form 15H to prevent tax deductions.

Consider Being a Second Applicant

If you don’t want to split your investment across different types of fixed deposits, you can avoid TDS by being a second applicant on an FD. The interest is usually paid by the first applicant, if the first applicant’s income is lower than the taxable bracket, deduction of taxes can be avoided.

With these tips on how to avoid TDS on your fixed deposit, the investment is sure to become all the more enticing. NBFCs offers excellent fixed deposit options for you to invest in. They offer an excellent interest rate of 7.85%, which goes up to 8.10% for senior citizens. You can start an FD with as little as Rs.25,000 and rest assured that your money is in safe hands, as this FD has CRISIL FAAA/Stable rating.


Tax, Tds

Meet the author

author avatar Arwind Sharma
Arwind Sharma a passionate writer on finance and closely associated with financial companies. He is still busy in discovering time-efficient finance schemes. To know more about Loan against

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