Ways to Avoid TDS on Bank Fixed Deposits

Benefits of Fixed Deposits:
Apart from the high-interest rate, few other beneficial factors are:

• Certainty of Fixed Return
•  Investment Security
•  Tax Benefits
•  Flexibility in Investment

But fixed deposits come with one single drawback, i.e., the interest which is received on fixed deposits is completely taxable and that’s what reduces the enticement of the same.
Being a fixed deposit investor, you should be aware of how the interest income is taxed, how tax benefits can be availed, and how the TDS on interest income can be waived.

About Deduction of TDS (Tax Deducted at Source):
Banks will automatically deduct TDS at the rate of 10% on the FD interest in case the income exceeds the exempted limit. In case the income is below the exempted limit, no TDS will be deducted.

To avert the bank from TDS deduction, the investor has to inform the bank about the interest income, confirm that it is lower than the exempt limit, submit a declaration Form 15G or Form 15H (as per the investor’s age) and submit their PAN (Permanent Account Number).
In case of failure by the investor to submit the PAN details, the bank will knock off 20% TDS. Hence, it’s wise to double-check with the bank whether they have your PAN details or not.

About Form 15G or Form 15H:
Form 15G or Form15H are self-declaration forms that are submitted by an individual to the bank. They are proof requesting the bank not to deduct TDS on the FD interest income since it lies below the exemption limit.
Investors aged above 60 years have to submit Form 15H, whereas investors below 60 years need to submit Form 15G to their bank.

Tax Deduction on FD Interest:
The interest income which is earned by fixed deposit is taxable under the heading “Income from Other Sources”. Few of the investors are unaware of the fact that though the amount which is invested in a tax saving fixed deposit is available as deduction under Section 80C of the Income Tax Act, the interest earned on the same cannot escape tax.

Tax-Exemption Criteria:
If the age of the individual is:

• Less than 60 years – income up toRs.2.5 lakh is the tax exemption limit
•  Between 60 – 80 years – income up to Rs.3 lakh is the tax exemption limit
•  Above 80 years – income up to Rs.5 lakh is the tax exemption limit

Your bank will consider your interest income received from all the fixed deposits on an annual basis.

• If the FD interest income amounts to Rs.40,000 or more(for investors below 60 years) or Rs.50,000 or more(for investors above 60 years), the bank will deduct the TDS at the rate of 10%.
• If their net income inclusive of the above-mentioned interest income falls below the minimum tax exemption slab, no TDS will be deducted for the same, provided they submit Form 15G and Form 15H respectively to their banks, along with their permanent account number.
•  The above-mentioned forms need to be submitted in the initial months of the financial year to avoid the mess of wrong tax deduction which follows with the refund process from the IT department.

Remember that these declarations are valid for a single financial year only, and hence the investor needs to submit these declaration forms every year for avoiding TDS deduction on the interest on fixed deposit interest.

How to Save TDS on Fixed Deposit:

1. By Submitting Form 15G / 15H:
To avoid TDS in the financial year 2021-2022, the investor needs to submit forms Form 15G or Form 15H (depending on their age and amount as mentioned above) in the initial months of the year 2021,to their banks where they have a fixed deposit.

2. Timing the Fixed Deposit:
You can select an optimum time for your fixed deposit, by gaining proper knowledge about the interest rate cycle. Ensure that the FD interest in the financial years is less than Rs.40,000 or Rs. 50,000 (in case of senior citizen).
Example: A yearly fixed deposit of Rs.10 lakhs at 6% can be initiated in September since the financial year ends on 31st March. This will split the interest in 2 financial years which can help avoid TDS.

Tax Benefits on Fixed Deposit Investment:
Investors are eligible to claim a deduction of up to Rs.1.50 lakhs in the financial year (as per Section 80C of the IT Act) on Tax saving FD investments. This investment amount will be deducted from the main income for getting the final taxable income.