Four Easy Ways to Avoid TDS on Fixed Deposits| North Loop Official Blog
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13 Oct 2020

Four Easy Ways to Avoid TDS on Fixed Deposits

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Introduction -

Fixed deposit is a sought-after investment option in the country because of its ability to provide high-interest rate returns for a fixed tenure. Also, the wide variety of FD schemes available in the market makes it a popular and accessible financial instrument for growing wealth. However, before choosing an investment option, it is always recommended to understand its tax implications.

What is TDS?

TDS or Tax Deducted at Source under the Income Tax Act of India, 1961 prescribes the collecting of a tax on payments exceeding certain threshold limits. The rates get specified by the tax department and the deductions applicable irrespective of the mode of payment.

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How to calculate TDS on FD?

If you are wondering how to calculate TDS on FD, continue to read further.The interest earned on a fixed deposit is taxable under 'income from other sources'. While the principal amount of the FD investment is exempt under section 80C of the Income Tax Act, TDS on FD interest does not come under its provisions and therefore, becomes applicable. For interest earned greater than Rs.10000 in a financial year, the TDS on FD interest is 10% along with 3% education cess. That means, for Rs.35000 as interest in one year (amount exceeds Rs.10000), the bank deducts Rs.3500 as TDS and pays only Rs.31500. The TDS limit for a company deposit scheme is Rs.5000. It means TDS is applicable for interest earned from a company deposit exceeding Rs.5000.

How to Avoid TDS on FD?

Now that you know how to calculate TDS for the interest earned on your investments, you must be thinking about how to avoid TDS on FD. Here we have listed four easy ways that you can follow to save TDS on FD -

Submit Form 15G/15H - Form 15G and 15H are self-declaration forms that state that your income is below the taxable limit and therefore, eligible for tax exemption. Form 15G is for resident Indians under the age of 60 years or a HUF while 15H is for resident Indians aged 60 years or above. You can avoid TDS on the interest earned on your FD investments by submitting this form to the bank. However, you must remember that the validity of these forms is only one year which means you are required to furnish it every financial year to save TDS on your FD income.

Distribute the FD investment - As you know by now that only interest earned greater than Rs.10000 on your FD investments are subject to TDS. That is the reason one other method to save TDS on FD is by distributing it among different banks in such a manner that the interest earned from each of your investment does not exceed Rs.10000. This method allows you to invest a large lump sum amount on FDs and save money at the same time.

Time the FD - Another way to avoid TDS on FD interest is by timing your investments appropriately. You can do that by investing in a 12-month FD instrument of Rs.1 lakh in say September so that the interest earned on it can get split in two financial years. That means, by the end of the first financial year in March, it would be below Rs.10000 and therefore, not attract the TDS provision. The interest for the subsequent financial year would also undergo the same rule, thus saving your money in both the years.

Split the FD - You can also save TDS on FD by splitting your investment corpus under two heads. That can get done by starting one fixed deposit under a personal account and the other under a HUF account. This method ensures that your FD investment does not remain clustered in one place, and the interest earned on them also gets distributed. That means, even if the total interest earned by you on your FDs is Rs.18000, TDS would not be applicable on it because the interest would belong to separate accounts (each below Rs.10000).

Investing in fixed deposits has always been a popular option because of its less volatile, low-risk and assured-return features. If you want to diversify your portfolio, grow your wealth or earn regular monthly incomes, fixed deposits are a good option for you. You can invest in FDs online from the comfort of your home through our online platform. We, at North Loop, offer FDs at an industry-high rate of 7.5% along with added benefits such as 100% digital application, online FD return calculator, minimal documentation and prompt customer support.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.