How to Save Income Tax on Fixed Deposit (FD) - Here’s 4 Easy Ways To Do So!

Unlike a common savings bank account, individuals can open FD (Fixed Deposit) which is one of the most favored investment strategies in India. 

You can earn extra income over the deposited amount at a pre-agreed interest rate. Fixed deposit can be defined as a financial investment where money is invested for a fixed tenure at a pre-agreed interest rate.

There are different kinds of FDs rolled out by banks - Regular FD, Tax Saving FD, Special FD, Recurring Deposit Scheme, and Floating FD. 

For those who wish to save income tax, ‘Tax Saving FD’ option is very close to suitable for them (generally for investors).

Remember the interest earned under any type of FD you opt is taxable under “income for other sources”. If the interest earned under FD above Rs. 10,000 in a financial year, the aggregate sum is liable for tax deduction at source (TDS) at 10 percent. 

For example; if an investor has earned ₹ 30,000 as interest in one year, the bank would deduct ₹ 3,000 and pay only ₹ 27,000 as the amount that exceeds the limit of ₹ 10,000.

Golden Rules To Be Aware of Before Investing in Tax Saving FDs

As per the ongoing income tax rules and regulations, under Section 80C of the Income tax act, individual taxpayers have the right to claim deduction for investments up to Rs 1.5 lakh in tax-saving fixed deposits.

Before made investment in tax saving FD there are some considerable things to keep in mind: 

• Tax saving fixed deposit(FD) schemes are only made for individuals and HUFs.
• The FD can be placed with a minimum amount which varies from bank to bank.
• Once you made an investment in-it, then deposits have a lock-in period of 5 years.
• Premature withdrawals and loans against these FD's are not allowed.
• You can successfully invest in these FD’s through any public or private sectors bank except for co-operative and rural banks.

Read more rules at economictimes article

Four Easy Income Tax Saving Fixed Deposit Tips

When investing in tax saving fixed deposit type of FDs the investor can enjoy saving taxes while considering these following tips. 

1. By submitting Form 15G/15H

This especially goes in the pockets for senior citizens, if an investor submits the form 15H (15G for other than senior citizens), it means that he has no taxable income, the bank would not deduct any TDS on the interest earned.

2. Distributing FD investment

The best and handsome way to avoid TDS on FD is that splitting the deposit into separate banks in such a way that interest earned from any of the FD wouldn’t exceed the Rs. 10,000 limit.

3. Timing the FD

Certainly the bank pays you the interest on FD over the certain period of time or upon completion of the maturity time. Hence, you can save TDS by timing your FD in such a way that interest for any of the financial years does not exceed ₹ 10,000.

4. Splitting the FD

Individual has the option to segment its deposit under his/her personal bank account and another one under an HUF account or other family members, and, in the eye of IT will be treated as separate. But that should be made in compliance with the provisions of the Income Tax Act.

Wait! Investing in Tax Saving FD - Take TaxWink Recommendation Guides

Taxes are certainly the crucial and tenacious term for investors. In case you are finally investing your deposit into a tax saving FD, then, wait, take fruitful and effective advice from TaxWink CA accredited experts guides for once. Contact us :)