Steps to save tax on the interest earned on a Fixed Deposit (FD)

In today’s era of technology, everyone has different preferences when it comes to saving money. Before investing, every investor weighs several factors, including the amount of money to save, the time horizon, the reason for saving, and other factors. Fixed deposit (FD) accounts have long been a popular way to save money since they are not subject to market fluctuations, unlike mutual funds online, and offer a fixed interest rate at maturity. However, the interest earned on an FD is subject to taxation. But with the right strategies, you can save tax on the interest earned.

Here are some ways you can save tax on FDs:

How is the interest income taxed?

The interest income from fixed deposits is fully taxed. The interest sum is added to your annual income and taxed at the slab rates that apply to your entire income. FD interest income is declared on your tax return under the heading ‘Income from Other Source’.

For people other than senior citizens, banks deduct tax at source when crediting interest to your FD account if the amount of interest exceeds Rs. 40,000 (the bar for older citizens is Rs. 50,000).

However, it is important to remember that TDS (Tax Deducted at Source) happens when the interest is credited, not when the FD matures. So, if you have a three-year fixed deposit, the bank will deduct TDS at the end of each year.

How to avoid TDS on FDs?

All interest income produced in India, including FDs, is subject to TDS, but there are ways in which you can avoid TDS. Following are some approaches to exempt TDS:

  • Self-declaration:All you have to do is file form 15G or 15H, whichever is relevant if the interest earned on FDs and total taxable income produced during the financial year does not exceed the prescribed taxable limit. Senior citizens have to fill out form 15H, and all other people have to fill out form 15G in this case.
  • Better investment management:You can make investments not exceeding Rs. 10,000 in a single year. For example, you could invest in a one-year-long FD in October, which would divide the financial year in half. With this method, you can avoid TDS on your investment because the financial year finishes on March 31.
  • The second applicant gets TDS exemption:In the case of joint FD, TDS is automatically deducted from the first applicant’s account. No amount is likely to be deducted if you are the second applicant in a joint account.
  • Investing across banks:Rather than placing all of the money in one bank, consider spreading your investments across several banks.
  • Submit your PAN details:If you fail to submit the PAN details, the banks will deduct TDS at a higher rate.

If you do not submit the self-declaration papers and TDS is deducted, the Income Tax Department will repay you if you file tax returns. You will have to wait until July of the following year, and the refund can take some time to process.

FDs are one of the most popular investment options because they provide guaranteed returns with no financial risk. However, to create a diversified portfolio, use the Tata Capital Moneyfy app. It helps you invest in mutual funds online that offer a high return while also giving you significant tax exemptions. Choose the SIP (Systematic Investment Plan) mode to reduce your investment risk in mutual funds online.

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