Smart Ways to Avoid TDS on Fixed Deposits

Smart Ways to Avoid TDS on Fixed Deposits

February 5, 2020 0 By Saahil

In India, fixed deposits are still considered as the one of most secure forms of investment in 2020. There are several financers who offer beneficial investment schemes which can help individuals avail substantial but assured returns. Fixed deposits are among the most commonly availed investment scheme offering security of the invested corpus as well compounding growth. However, as per the guidelines Income Tax Act, interest earned in a fixed deposit account is taxable, unless it is the best NRI account.

When do financial institutions deduct TDS on fixed deposits?

The income from your FD interests is taxable, consider the following pointers –

  • As per Budget 2019, if your income from all FD accounts in a financial institution does exceeds Rs.40,000 in a financial year, TDS will be deducted accordingly.
  • Financial institutions will deduct 10% TDS applicable on the amount over and above Rs.40,000.
  • If your annual income from FD interests is more than Rs.40,000 but your total income from all sources does not exceed the income tax slab of Rs.2.5 lakh, then financial institutions are not eligible to deduct TDS on FDs.

5 ways to avoid TDS on your fixed deposit accounts

There are several methods by which you can avoid TDS on your FDs, they are –

  • Submitting form 15G/15H

If your earnings from fixed deposit accounts do not exceed Rs.40,000 in a financial year, you are required to submit Form 15G or 15H so that financial institutions do not deduct any TDS.

FD account holders above the age of 60 years are required to submit Form 15H while those below the age of 60 need to submit Form 15G to avoid TDS on fixed deposits. It is vital that borrowers understand the benefits of submitting Form 15G or 15H for fixed deposits.

  • Appropriate investment distribution

If you open FDs in different financial institutions, distributing your investment in such a fashion will help substantially in avoiding TDS on your fixed deposits. For example, you are willing to invest a certain amount of money in an FD account where the interest rate offered by the financial institution results in the annual interest income being above Rs.40,000 and thus liable for TDS.

In such cases, if you distribute your investment across various financial institutions, the annual interest income will always be relatively lower, thus helping you to avoid tax deductions at source.

  • Opening NRE FD accounts

Another option for investors to avoid TDS on fixed deposit accounts is by opening a Non-Resident External or Foreign Currency Non-Resident FD account. Since the income earned by NRIs is already taxed in foreign countries, NRE and FCNR FD accounts are not eligible for TDS. So, opening the best NRI account in India provides you with added benefits other than enhancing the foreign currency reserve-ratio of our country.

  1. Timing your FD account opening perfectly

If you open an FD account closer to the end or in the last two quarters of a financial year, your TDS will be assessed for two financial years. For example, if you have two fixed deposit accounts, one of which was opened in the early quarters of a financial year while the other FD account was opened in the final quarter of the same financial year, TDS for the latter FD account will be deducted in the following financial year. Hence, investors can avoid TDS on their multiple fixed deposits by timing their investment tenor appropriately.

  • HUF

As per Section 2(31) of the Income Tax Act, HUF or Hindu Undivided Family is considered as a person. Hence, individuals can open an FD account under their name and another one as a HUF account where both the accounts are regarded as separate FDs. So, individuals can distribute their corpus under these two FD accounts, which will help in avoiding TDS.

Thus, from the above discussion, you get to know about TDS on FD interests and how to avoid them, one of which is opening the best NRI account in India. For individuals who are not NRIs, they can easily benefit from the available tax benefits other than compounding investments. Refer to leading financers such as Bajaj Finance to benefit from interest rates as high as 8.35% as well as industry-leading corpus security ratings.