Big paychecks come with bigger tax liabilities. But with the multiple provisions in the Income Tax Act, you can park your money in different investment instruments to grow your wealth while also saving some extra bucks on taxes. A fixed deposit is one such instrument.
Investors prefer fixed deposits for many reasons. These include-
- Fixed interest rates
- Guaranteed returns
- Little to no risk
- Customisation
- Flexible tenure, etc.
With a tax-saving fixed deposit, you can reduce your tax liability. How? Let’s find out.
What Is a Tax-Saving Fixed Deposit?
A tax-saving FD offers tax benefits under Section 80C of the IT Act. You can claim a tax exemption for up to Rs. 1.5 lakhs when you invest in an FD for a minimum of 5 years. Here are other features of fixed deposit tax-saving that make it an ideal investment option-
- The interest rate on tax-saving fixed deposits remains unchanged for 5 years.
- You can choose from multiple payout options- monthly, quarterly, semi-yearly, yearly, or on maturity.
- You can book a tax-saving FD for a single or joint account.
- You get flexibility for the amount you want to deposit.
Ways to Save Tax on FD Interest
The amount you invest in tax-saving fixed deposits is exempt from taxes. But, a TDS applies to the interest you earn if it exceeds Rs. 10,000 in a year. Here are some ways in which you can prevent this-
1. Submit Form 15G or 16H
If your income is within the basic exemption limit, you can fill out form 15G and submit it to the bank. It is a self-declaration claiming you don’t possess any taxable income.
2. Split Your Fixed Deposit
If you belong to a Hindu Undivided Family (HUF), you can open two fixed deposits- one personal and one under the HUF account. This way, the interest earned on both accounts will be separate and help you save on taxes.
3. Plan Your FD Tenure Smartly
If the tenure of your fixed deposit lies within 2 financial years, you can divide the interest between them. So, if your interest surpasses Rs. 10,000 in a year, it can be accounted for in the following financial year.
4. Open multiple FDs
You can open different FDs in different banks. This way, the interest on them will remain below Rs. 10,000, allowing you to save on taxes.
5. Link Your PAN Card
While booking a fixed deposit, you must submit your PAN card. If not, the bank will apply TDS on your FD interest at a higher rate.
To Sum Up
When it comes to tax exemption, fixed deposits offer several perks and benefits. It is an excellent tool to grow your wealth and save on taxes without bearing the risk of market fluctuations.
Moreover, leading banks offer the best-in-class interest rates along with benefits like flexible tenure, instant online booking, flexible interest payouts, and much more. So, open your account today and make the most of tax-saving provisions.