Fixed deposits (FDs) in banks are one of the safest investment plans in India. And why shouldn’t they be? After all, you know exactly how much you will get after the FD matures, as the interest rate is already fixed. However, not many are aware of the fact that high inflation and tax deductions on the interest earned can reduce your earnings. So, it would be beneficial if you maximize your returns by avoiding TDS or Tax Deducted at Source on your FDs in whatever small way possible. After all, it will lower your total interest earned; much more so, if the TDS is deducted on a quarterly or semi-annual basis and not annually.
A TDS of 10% is generally deducted by banks in case the interest exceeds Rs 10,000 in a financial year. But since there are no set rules as to when the taxes should be deducted by the banks, different banks follow different procedures.
So, how can you avoid or cut down the TDS on fixed deposits? Simply follow any one of the four simple approaches mentioned below:
1. Submit Form 15G/15H
15G and 15H forms are declarations that state you are not eligible for paying tax on the interest, even if it crosses the threshold of Rs 10,000. Both these forms fundamentally serve the same purpose; the only difference is that 15G is applicable for citizens below the age of 60 while the 15H is applicable for senior citizens. These forms are used when your total taxable income is expected to be NIL. If you belong to any one of the two categories, make sure you submit the appropriate form prior to the first payment of interest from the bank.
15G and 15H forms are declarations that state you are not eligible for paying tax on the interest, even if it crosses the threshold of Rs 10,000. Both these forms fundamentally serve the same purpose; the only difference is that 15G is applicable for citizens below the age of 60 while the 15H is applicable for senior citizens. These forms are used when your total taxable income is expected to be NIL. If you belong to any one of the two categories, make sure you submit the appropriate form prior to the first payment of interest from the bank.
2. Distribute your FD investments
You can also avoid TDS by splitting your cash deposits in separate banks. Just ensure that the interest earned from each of these deposits never crosses over Rs 10,000.
You can also avoid TDS by splitting your cash deposits in separate banks. Just ensure that the interest earned from each of these deposits never crosses over Rs 10,000.
3. Time your FD
Another effective method of avoiding TDS is by timing your FD in a manner that the interest for any of the financial years does not surpass Rs 10,000. For instance, a twelve-month fixed deposit of Rs 1 lakh at 10.5% interest rate can be easily started in the month of September. Remember, the financial year ends on 31 March. So, the interest would automatically be split into two financial years, thus helping you save on the TDS.
Another effective method of avoiding TDS is by timing your FD in a manner that the interest for any of the financial years does not surpass Rs 10,000. For instance, a twelve-month fixed deposit of Rs 1 lakh at 10.5% interest rate can be easily started in the month of September. Remember, the financial year ends on 31 March. So, the interest would automatically be split into two financial years, thus helping you save on the TDS.
4. Split Your FD
Alternatively, in order to avoid TDS on your fixed deposits, you can start one FD under your personal bank account and begin another one with an HUF (Hindu Undivided Family) account, while ensuring that the annual interest on both the accounts is kept below Rs 10,000. Here, both FDs will be treated as separate entities.
Alternatively, in order to avoid TDS on your fixed deposits, you can start one FD under your personal bank account and begin another one with an HUF (Hindu Undivided Family) account, while ensuring that the annual interest on both the accounts is kept below Rs 10,000. Here, both FDs will be treated as separate entities.
This work is produced by Simplus Information Services Pvt Ltd.
source:yahoo.com
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