In fixed deposit, a person deposits some lumpsum amount of money with the banker for a fixed period of time. In return the banker pays higher rate of interest when compared to normal savings interest. The longer the period of time higher the rate of interest.
Interest on Fixed deposit is taxable under the head “Income from other sources”. This tax is paid partially through TDS and partially through self-assessment tax.
Every bank before paying interest on FD deducts TDS if such interest is more than Rs. 10,000. (Section 194A).
Rates of TDS: -
• TDS is deducted only if the interest payable is more than 10,000 per year.
• TDS is to be deducted at the rate of 10% on the gross interest.
• The rate will be 20%, if PAN card is not provided.
Form-15G & Form 15H are forms submitted for non-deduction of TDS on your income. It is submitted to declare that your income is below taxable limit and requesting bank for non-deduction of your TDS income.
Form 15H is for senior citizens whose age is more than 60Years. Form 15G is for the rest of assessee’s
Form 15G / 15H are valid for only one Financial year only. So,in order to avoid TDS deduction every year it has to be submitted every year.
This form declares that your taxable income is NILL, so that TDS not to be deducted
Form 15G can be submitted by both individuals and HUF’s. whereas Form 15H can be submitted by only individuals.
These forms can be submitted only by resident Indians. NRI’s cannot submit these forms.
2. Distributing Fixed deposits over different banks: -
One way of bypassing TDS provisions is by not depositing the entire Lumpsum amount in one bank. Instead of that split the amounts into various amounts and deposit in various banks such that none of the banks FD interest does not exceed Rs. 10,000 annually.
When any of the bank’s annual interest does not exceed the limit, No TDS will be deducted.
3. By creating timing differences: -
Another way to escape TDS provisions is by managing the time of making fixed deposits. If you make the deposit at such time so that the interest from the date of deposit to March 31st is less than 10,000.
If a fixed deposit of Rs. 1,50,000 is made on May 2015 with an interest rate of 10%, then the accrued interest upto March 2016 will be Rs. 13,750. TDS provisions will be attracted.
If we make the same deposit in September 2015, the interest accrued will be 8750 by March 31st which will not attract TDS.
In the end, what we have done is we have split the one year interest into 2 Financial years so that TDS provision can be overlooked.
4. Depositing in 2 status: -
Another way is by depositing in HUF status as well as Individual status separately in such a way that none of the interest income does not exceed 10,000 per year.
Fixed deposits are one of the most liked investment options. And it is one of the easiest and safest investments. By following above options we can escape from the taxability on interest income.
However, the deposit in fixed deposits can be claimed as deductions under section 80C also. So, at the end of the day both the deposit amount and interest can be used for tax saving.