Amongst the different financial products available in the market the fixed deposit is one of the most popular options. For one, you can invest a large and fixed amount for a fixed duration. You also get a return on investment at quarterly, half yearly or yearly tenures. At the same time, your investments will be kept well protected against the volatile conditions of the market, as the rates are locked in at the time of investment. To get the ideal investment option, you can always use the fixed deposit calculatorto calculate the ideal amount that you would require.
But while this investment offers you the ideal returns, there is one factor that will put a crimp into your investment. The interest you earn on your bank fixed deposits is fully taxable under the tax deducted at the source (TDS) scheme. Under this, banks are liable to deduct TDS at the rate of 10% on the interest earned, especially if the interest earned is more than Rs. 10,000. Additionally, if you do not submit your permanent account number (PAN) with the bank, you are liable for a deduction at a rate of 20%. The only way to claim the TDS deduction is by filing an IT return and waiting for your refund to be deposited back.
In order to avoid getting into such a situation as this one, you can incorporate the following steps to avoid TDS:
Submit form 15G or 15H: The first step you can take to avoid the TDS, is by submitting Form 15G/15H with the bank. Depositors whose total interest earned for the year is below the exemption limit along with total tax payable for the year is zero, can submit these forms to avoid TDS. These forms are self – declaration forms, that can be submitted by an individual stating that his or her income is lower than the taxable limit. Form 15G is normally provided for individuals below the age of 60. Similarly, form 15H is for individuals above the age of 60.
Distribute your investments across banks: As per the TDS policy, if your interest income exceeds more than Rs 10,000 you are liable for TDS. This will only occur if you have invested a high amount in a single or multiple fixed deposits in a single bank. Thus to reduce your income earned you can invest in multiple banks. You can use the fixed deposit calculator to calculate the ideal amount that will offer you the highest return, and yet avoid being in the TDS bracket.
Time your investments: Another alternate option you can consider is the interest that is being deposited. You can time the interest deposit in such a manner, that it doesn’t exceed Rs. 10,000 in a single financial year. For example, you can invest a lot of funds, with 12-month tenure in October. Since the financial year will close on the 31st of March, the interest will be split in two financial years, thus avoiding TDS.