4 Easy Ways to Avoid TDS on Fixed DepositsBusiness FinancingUpdated on Apr 6, 2016 View more like this | Visit INDIAHOMA, OK | Contact Arwind Sharma |
We Indians view fixed deposits as a favourable investment option, but often forget to take into account the tax that has to be paid on the interest earned. A TDS (Tax Deducted at Source) of 10% is levied if the interest you have earned from a fixed deposit is over Rs.10,000 in a financial year.
Here are four smart ways you can avoid paying TDS.
Submitting form 15G/H
This form is a declaration that you are not eligible to pay TDS, as your income is below the threshold limit for tax payment. For those below 60 years of age, the minimum income limit in a financial year on which no tax is applicable is Rs.2.5 lakh. For those aged 61 to 80 years, the limit is Rs.3 lakh. The limit rises to Rs.5 lakh for individuals over the age of 80 years.
Form 15G is for citizens below the age of 60 years, and 15H is for those who are above 60. Submit the forms before you receive the first interest payment from the bank to ensure that no tax is deducted. If TDS has already been deducted, then don’t forget to file for income tax returns.
Splitting up Fixed Deposit Investments
Instead of investing all your money into one bank, distribute your investments across multiple banks. When doing so, make sure that the interest that you get from each fixed deposit does not exceed Rs.10,000. This will save you from having to pay any tax.
As per the new laws of the 2015 budget, TDS will be deducted by clubbing together all your fixed deposits within a bank and its branches. So remember to invest in various banks, and not just different branches.
Making Mid-Year Investments
Investing at the right time can help bring down the TDS. If you start a 12-month FD in the middle of a financial year (say in the month of September), the interest amount will get divided between two financial years.
This will help you stay below the Rs.10,000 mark in both the years, thus keeping you from having to pay TDS. An online fixed deposit interest calculator can help you do the math.
Using Multiple Entities
As per Indian laws, if you are a Hindu, your family can have a separate tax entity known as HUF (Hindu Undivided Family). This gives you the freedom to open fixed deposits not only in your own name, but also under the HUF entity. Splitting the investment amount between two parties will help you keep the interest below Rs.10,000 on both accounts. This is an excellent and completely legal way to save on taxes.
FDs are reliable and allow liquidity, but they don’t always come with high fixed deposit interest rates. This is why these four tips can be extremely beneficial. If implemented correctly, they can help you avoid paying unnecessary TDS, and thereby increase your returns.
About the Author:- Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.
Here are four smart ways you can avoid paying TDS.
Submitting form 15G/H
This form is a declaration that you are not eligible to pay TDS, as your income is below the threshold limit for tax payment. For those below 60 years of age, the minimum income limit in a financial year on which no tax is applicable is Rs.2.5 lakh. For those aged 61 to 80 years, the limit is Rs.3 lakh. The limit rises to Rs.5 lakh for individuals over the age of 80 years.
Form 15G is for citizens below the age of 60 years, and 15H is for those who are above 60. Submit the forms before you receive the first interest payment from the bank to ensure that no tax is deducted. If TDS has already been deducted, then don’t forget to file for income tax returns.
Splitting up Fixed Deposit Investments
Instead of investing all your money into one bank, distribute your investments across multiple banks. When doing so, make sure that the interest that you get from each fixed deposit does not exceed Rs.10,000. This will save you from having to pay any tax.
As per the new laws of the 2015 budget, TDS will be deducted by clubbing together all your fixed deposits within a bank and its branches. So remember to invest in various banks, and not just different branches.
Making Mid-Year Investments
Investing at the right time can help bring down the TDS. If you start a 12-month FD in the middle of a financial year (say in the month of September), the interest amount will get divided between two financial years.
This will help you stay below the Rs.10,000 mark in both the years, thus keeping you from having to pay TDS. An online fixed deposit interest calculator can help you do the math.
Using Multiple Entities
As per Indian laws, if you are a Hindu, your family can have a separate tax entity known as HUF (Hindu Undivided Family). This gives you the freedom to open fixed deposits not only in your own name, but also under the HUF entity. Splitting the investment amount between two parties will help you keep the interest below Rs.10,000 on both accounts. This is an excellent and completely legal way to save on taxes.
FDs are reliable and allow liquidity, but they don’t always come with high fixed deposit interest rates. This is why these four tips can be extremely beneficial. If implemented correctly, they can help you avoid paying unnecessary TDS, and thereby increase your returns.
About the Author:- Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.
