Smart ways to save on TDS from fixed deposits in India
TDS on various instruments
i) Company fixed deposits
If you invest in company fixed deposits, a TDS is applicable over and above an interest rate of Rs 5000. So, for example, if your interest income reaches Rs 5000, there would be a 10 per cent TDS on the interest income and surcharge as applicable.
ii) Bank deposits
Similarly, if you invest in bank deposits there would be a TDS if the interest income crosses Rs 10,000 and not Rs 5000 as in the case of company fixed deposits.
iii) NCDs
In case of non convertible debentures, there is no TDS if you hold the NCDs in the demat form. However, interest income is taxable and in all cases, you need to add the same for the purpose of tax. The below are some ways to reduce TDS liability on interest income.
How to reduce TDS from fixed deposits?
1) Create deposits in multiple names
You can create deposits in the name of parents, wife etc., to reduce your TDS amount. Say for example, if you are likely to place Rs 1.8 lakhs in a fixed deposit, you would end up paying TDS, since your interest income at 10 per cent interest rate would be Rs 18,000.
By having the fixed deposit in the name of two individuals, you would end up earning an interest of Rs 9,000, wherein there would be no TDS, since bank deposits attract a TDS only if the income crosses Rs 10,000.
b) Submit for 15G/15H
If your income is not above the threshold limit for tax payment, then it's best to submit form 15G/H as the case maybe. This would ensure that there is no TDS cut. Otherwise, to get the TDS deducted you would need to file income tax returns. Read more on form 15G/H here
C) Open a number of deposits
You can opt for opening deposits at two different banks or also in two different instruments. For example, you could consider opening a company fixed deposit and another as a bank fixed deposit. This way you would be able to save on your TDS. For example, if you want to invest Rs 1 lakh, do it in two deposits in two different instruments of Rs 50,000 each.
Conclusion
It's best to avoid TDS from fixed deposits at the outset since you would have to claim refund at a later stage from the Income Tax Authorities, if you are not liable to pay tax. However, if you are liable to pay tax, it's best that you allow the TDS to be deducted.
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