A term deposit is an extremely common method of investment in India. They are considered a safe option and hence they are preferred by all. Once you invest your hard-earned money in a term deposit, there are very fewer chances of you losing them. Fixed deposits and recurring deposit are the types of term deposit.
Fixed deposit is a long term investment and anyone would expect to earn good profits from their investment. Paying tax will cut back on your investment and hence you should think wisely before investing your money.
Fixed deposit is when you invest your money only once during the tenure of the deposit. You will keep earning interest on this and it is up to you if you want the interest on a monthly basis or if you want to collect it all once the FD matures. Recurring deposit is when you keep depositing a certain amount of money every month in the deposit and you will keep earning interest on the funds that you invest.
But usually, the tax is levied on the interest that if you earn more than INR 10,000 in a financial year. The tax that you pay depends on the tax bracket that you fit in.
Here are a few ways in which you can avoid paying TDS when it comes to fixed deposit:
- Submit Form 15G/15H:
One of the easy you can avoid paying TDS is if you submit Form 15G. Form 15G states that you do not have any income upon which tax can be levied. Once you submit this form, the financial institution or lender will not take away any TDS on the rate of interest that you earn. If you are a senior citizen or if you are a retired person, you will have to submit Form 15H in order to avoid paying TDS.
- Split your investment amount:
This is one of the most logical options that you can opt for. You have to pay tax if you earn more than INR 10,000 interest on your fixed deposit. If you have a large amount to invest, split this amount into smaller portions. Invest these smaller portions into different fixed deposits. This will not only help you in earning more interest over the tenure of the fixed deposits but you won’t have to pay tax. You do not have to pay tax if you earn more than INR 10,000 on different fixed deposits.
Another advantage of investing in a various fixed deposit is that you can choose different tenure for each fixed deposit and if you are in dire need for some funds, you will only have to break one fixed deposit at a time. You will also keep receiving the benefits of investing your money in various fixed deposits periodically.
- Time your fixed deposit:
Another way of saving TDS is that you time your fixed deposits such that in a financial year, the interest that you earn does not exceed INR 10,000. You can do this by keeping a tab on the current market situation.
Timing your fixed deposit means opening your fixed in such a way that the interest that you earn is split in two financial years. This is how you can avoid paying TDS.
- Split your fixed deposit:
You can split your fixed deposit by opening one fixed deposit in a bank and the other under a Hindu Undivided Family (HUF). Both of your fixed deposits will be treated as different which will help you save on the TDS.