How to save TDS on bank fixed deposits


Banks have instructions to deduct tax at source on your fixed deposits, should they earn more than Rs10,000 in a financial year. Here’s how you can avoid it altogether.

A bank fixed deposit (FD) is the most popular Indian investment. It’s safe and the 9-10% returns we’ve seen for the past few years are great. But at the end of the day, all your returns are taxed. And if the interest you earn is over Rs10,000 in one financial year (April to March), it is eligible for tax deduction at source 10.3 percent of the interest earned. This is regardless of whether you should be paying any tax on it at all. But there are four ways around this:

Distribute the money: The banks can only tax your deposits at source if the interest earned over a financial year is Rs10,000. The easy way around paying the tax, therefore, is to split the deposits between two banks. It is easy to open an FD in any bank nowadays, so this is not as inconvenient as it may seem. So long as your interest is less than Rs10,000 in one bank, you’re safe. Public sector banks do have a problem with you opening an FD if you don’t already have a savings account, but most private ones don’t.

Submit form 15G/15H: If your income is not taxable, the government says your income should not be taxed at source. For this, you need to submit a declaration. If you aren’t a senior citizen, you should submit 15G. This is a simple form that tells the bank that you aren’t liable to pay any tax on the FD, regardless of the amount of interest earned. If you’re a senior citizen without taxable income, the form you’ll need to submit is 15H.

Spread it over two years: In the case of a one-time large fixed deposit, one option would be to split the interest over two years. For this, two things are essential – the first is that you would need to have the interest from the FD paid out cumulatively (every quarter or bi-annually). The second is that the investment should be made mid-year, if possible. Consequently, with the interest accrued over two financial years, TDS would not be deducted.

Accounts with different heads: This is one of the many tax advantages of having an HUF account. Despite investing your money here, it is treated as being under another head. Therefore, the two will be treated as separate, even if both are accounts at the same bank.