Fixed Deposit (FD) accounts are extremely popular in India. In total, Indians have ₹ 103 trillion saved across 24,23 million FD accounts. While benefiting from lower risk and stable returns, FD depositors can also increase their tax savings in certain ways, for example, by opting for a tax-saving FD. Readers who wish to save taxes through their FDs can read this article to know more.
Tips to save more taxes through fixed deposit investments:
- If a depositor’s total income falls under the taxable limit, they must submit Form 15G/15H: FD account depositors whose total income falls under the taxable limit do not have to pay TDS (Tax Deducted at Source) on their FD interest income. If a depositor’s taxable income is less than ₹2.5 lakh, they can submit Form 15G/15H to their bank, depending on their age. Form 15G is for depositors who are under 60 years of age, and Form 15H is for senior citizens. Depositors must submit this form before the beginning of the new financial year.
- Depositors can claim a refund by filing Income Tax Return (ITR): If an investor is unable to submit the Form 15G/15H, they can file their ITR and have the money deducted as TDS to their bank account if their income does not exceed the tax limit.
- Strategizing FD investments can help a depositor save more tax: Depositors can plan their FD investments in a way that keeps them from earning an interest income of ₹ 40,000 in a financial year. They can book a one-year-long FD in the middle of the financial year (FY). By doing so, the interest income earned from the FD will be split among two FYs, helping the depositor save more tax by avoiding TDS. As for the interest earned through FDs, depositors can use an FD interest calculator to calculate their FD interest at the time of maturity.
- One can open FDs with multiple banks to reduce tax liability: Depositors can open FDs with several banks to reduce their tax liability. Booking multiple FDs with different bank accounts can help an investor ensure that their total FD interest income does not exceed the ₹ 40,000 mark in a financial year.
- Booking FDs with shorter tenures can help depositors save more tax:
An FD with a shorter tenure offers relatively less interest earnings to depositors when compared to an FD with a longer term. Depositors can split their investment amount in multiple FDs, called FD laddering, with short terms to reduce their tax liability.
Depositors who wish to make the most of their FD investments should also use an FD calculator to know their returns in advance. Another way to reduce tax liability on one’s FD returns is opting for a tax-saving FD, which may not allow premature withdrawals but helps one save on taxes.
Before booking an FD, it is a prudent step to analyse one’s short- and long-term financial goals and the need for liquidity.