Fixed Deposits are a much-vaunted choice of investment for Indian households. They are used as a retirement fund, investment source as well as considered a safe option for many people. One issue that many investors however face is the Tax Deduction on the source that is accompanied by investment in fixed deposits and fd interest rates thereon.
Many investors don’t earn higher than the minimum taxable amount and hence the TDS deducted is an opportunity lost for them in terms of compounding of interest as well as robbing them of enjoying the best FD advantages. Such pain is even more profound on senior citizens who not only rely on such interest for their daily expenses but might find it troublesome to file their Income Tax return as well. Today, we will discuss various methods through which you can avoid TDS on a fixed deposit:
Submission of Form 15G/15H:
Form 15G and Form 15H are the mechanism of the Income Tax department wherein one can submit these forms to the financial institutions. The forms are a declaration that the total income of the declarant is less than the minimum amount which is taxable and hence the bank should not deduct their TDS. The bank consequently won’t deduct your TDS and you won’t have to claim back such TDS by filing your income tax returns. Form 15G is to be submitted by any person below the age of 60 whereas Form 15H is to be submitted by any person above that age.
Applying for a lower TDS Certificate:
Another option available to individuals is the filing of a Lower TDS Certificate. An individual might be earning taxable income but for any reason might not have tax payable or their total tax payable might be lesser than the rate of TDS. In such circumstances, the concerned individual can apply to the Income Tax Department to grant them a Lower TDS Certificate. Such a certificate can be obtained even at the Nil rate and can be submitted to the financial institutions. This will enable the institution to not deduct TDS on any payments being made to the individual in the form of interest.
While some investors invest in Fixed Deposit as an income source or retirement, Fixed Deposits provide tax benefits as well. Investment in Fixed Deposit can give tax benefit under section 80C of the Income Tax act. The benefit under section 80C can allow the investor to reduce their taxable income and hence reduce their tax liability. However the only caveat is that the Individual has to stay invested for a minimum period of five years. Any withdrawal of the fixed deposit before such time frame would result in addition to taxable income.
Fixed Deposit can provide both tax benefits as well as income to investors. The TDS however is troublesome for some dependent investors. TDS enables the government to ensure there is no tax evasion but for certain individuals and in most cases senior citizens it often becomes a hassle some. These methods will allow individuals to enjoy their income without any TDS being deducted and allow such an additional amount to be compounded for the life of the fixed deposit.
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