We try to save a lot when it comes to monetary funding. We all know how much money is important for us all to have a better tomorrow. Most of us believe that by saving little by little every day might help us someday in the future. Opinions like these may seem feasible, but if you think logically, you might notice that there are many loopholes in this plan. What if you need of funds all of a sudden? What if all your money is devoured by a medical emergency? What if you need money in the future in amounts much more than you have in your bank account?
All these questions might make you reconsider your decision towards saving your money for the future. To keep the inflow of funds constant, you need to invest your money in the sources that provide you with guaranteed returns on your investment(s). There are investment sources in the market, which can offer you returns as well as keep your invested capital safe. FD is the best option for secured returns and the safety of your investment. The return you gain from your FD is totally dependent on the FD interest rates offered by the service provider.
As directed by the Reserve Bank of India (RBI), the interest you gain from your FD account is fully taxable. If your return amount exceeds INR 10,000, you are liable to pay TDS at the rate of 10% at the time of investment withdrawal. This can be disheartening for the people who are first-time investors and are expecting significant returns. There are ways you can reduce your tax liability. Here are the steps that you can take to save on taxes:
- Applying for 15G or 15H form: One of the best ways to reduce your tax liability is to apply for the 15G or 15H form. These forms can be used to exempt you from the TDS applicable to your interest income. The form 15G is for low-income individuals that have an annual income less than the amount (i.e. Rs. 2.5 Lakh) set by the RBI, whereas the form 15H is for senior citizens (individuals above 60 years of age).
- Applying with different service providers: This can be one of the ways to save on taxes, but it can be tedious at the same time. In order to reduce your income tax liability, you can diversify your investment. In other words, invest in multiple investment instruments, which will break your income into smaller dividends. Due to the low amount of dividends, the interest income will not reach the amount of INR 10,000 and you will end up saving on your taxes.
Note: Make sure you provide your PAN details to your bank to avoid TDS deduction at the rate of 20% on interest income.
- To apply for IT Returns: As returns gained from FDs are fully taxable, the amount you invest in one or more FDs reduces your annual tax liability. However, the interest you earn from such an investment is taxable under ‘income from other sources’.
Under section 80c of the Income Tax Act, 1961, an individual can claim a tax deduction of up to Rs. 1.5 Lakh from their total income.
This segment helps to solve queries, such as what is TDS on Fixed Deposit and provide information about how you can save on income tax and TDS by using the ways mentioned above, and you can save directly by investing a certain amount, and then filing a tax return. It is highly recommended that you keep track of your investments.
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