Fixed deposits or FDs, also known as term deposits, are one of the best options for people looking for a risk-free assured income. Under certain instances, the FD interest becomes subject to tax deducted at source (TDS) deduction.
According to Archit Gupta, Founder and CEO - ClearTax, if in a financial year, the total interest income earned from FD exceeds Rs 40,000 (in case of resident senior citizen Rs 50,000), then the payer is liable to deduct TDS while paying or crediting interest in the account.
It is to be noted that the limit of Rs 40,000 (or Rs 50,000) is calculated, including all the bank branches and not just a single branch.
Anil Pinapala, Co-Founder of Vivifi Technologies suggests that one can avoid TDS on FDs by splitting the deposit into separate banks in such a way that interest earned from FDs does not exceed the said limit.
Now, in case the total income is below the exemption limit and tax is deducted at the source on interest earned from fixed deposits, Gupta of ClearTax says that one has to claim a refund of tax deducted by filing the return of income.
Additionally, if the interest income does not exceed the prescribed limit, according to Sukeert Shanker, CEO, Aeldra, a person can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank at the start of the financial year.
The declaration under these forms is applicable for only one financial year. So, one has to give the declaration to the payer every year to avoid TDS on interest.
“PAN is also a necessity when it comes to deduction of TDS. It's important to see that bank has the PAN details or else they can deduct 20 percent TDS,” advises Rajesh Gupta, Co-Founder and Director, Busy Infotech.
Additionally, Gupta explains that a senior citizen can avoid TDS if his/her total taxable income is above the basic exemption limit but not more than Rs 5 lakh. A senior citizen's tax liability is zero if he/she is eligible to claim a deduction of up to Rs 12,500 under section 87A, where the net taxable income does not exceed Rs 5 lakh. Hence, in such cases also he/she can submit form 15H.
The interest earned is taxable as per the investor's tax bracket and therefore, TDS is applicable. The interest on deposits is payable on either a monthly/quarterly basis or can be reinvested.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions."avoid it" - Google News
March 18, 2021 at 03:48PM
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Paying TDS on fixed deposits: Here's how to avoid it - CNBCTV18
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