When you invest in fixed deposits, you are eligible for several benefits. Apart from being extremely easy to apply for, and being one of the most secure forms of investment, they also allow you to choose a tenure and interest payout interval that fits your needs. However, the one downside is that you might have to pay taxes on your fixed deposit returns.
How can you escape taxation on fixed deposit investment?
While investing in a fixed deposit, you should be aware of the taxation on fixed deposit. If you earn an interest of over INR 10,000 in a given financial year, then you will have to pay taxes on the extra returns. The interest rate offered to you depends on the amount that you are investing and the tenure that you are investing it for.
Here are some measures you can take to avoid taxation on your fixed deposit returns:
- Divide your funds:
If you are planning to invest a lump sum amount, then the bank might charge you with taxes. The best way to avoid this is to divide your amount and then invest it in saparate fixed deposit accounts. This will get you higher returns as well as save you from paying taxes.
- Time your fixed deposit account:
You can time your fixed deposit account by structuring it in a way that your FD interest rate does not exceed INR 10,000 in a given financial year. For example, if you are planning to invest INR 1 lakh in a fixed deposit for a tenure of one year, which gives you an interest rate of 10.5 %, then you can start your fixed deposit at the beginning of September. Since the financial year ends in March, the interest that you earn will be split into two parts and you won’t have to pay any extra taxes. If you you want to know you are under tax or not and want to know how much interest you will earn then you can take help of online FD calculator it will help you to know you need to pay tax or not.
- Submit your 15G/15H:
You can get excused by the bank if you submit your form 15G which declares that you don’t have any taxable income. By submitting this form, the bank will deduct all taxes on your fixed deposit. Senior citizens can also avail this service by providing form 15H. If you wish to save your funds from taxation, then you must submit these forms at your bank.
Now you know what steps should be taken if your bank charges you with tax on your fixed deposit returns. Keep these pointers in mind, and you should be able to get the maximum benefit from your investment, while saving taxes.