Bank fixed deposits

In the case of bank deposits, tax is deducted at source at 10 per cent, if your interest income is over Rs 10,000. Apart from this there is a education cess surcharge of 3 per cent that is applicable. This takes your total tax liability to 10.3 per cent in the case of bank deposits, if you earn interest of more than Rs 10,000.

Let's cite an example. If you have a bank fixed deposit of Rs 1.2 lakhs at the rate of 10 per cent, than your annual interest income would be Rs 12,000 (slightly more for quarterly compounding). The bank would cut a TDS of Rs 1260, being tax deducted. Therefore, what you earn if Rs 10,740 and not Rs 12,000. In case your income is not taxable, than you can submit form 15G or 15H and the bank would not cut TDS. Do know more on what form 15G and form 15H is click here

Company fixed deposits

While TDS on Bank Fixed Deposits is applicable if the interest from your fixed deposit surpasses Rs 10,000, in te case of company fixed deposits it is not so. Company fixed deposits attract TDS as soon as the interest income is more than Rs 5000 annually.

As mentioned above, if you are not liable to pay tax you can submit form 15G or form 15H as the case maybe. This would ensure that the company in question does not cut any tax.

TDS on NCDs

Non Convertible Debentures or NCDs are another set of popular instruments that are often subscribed by individuals as they tend to offer higher rates of interest than company fixed deposits and bank deposits.

However, they do not attract TDS in case the NCDs are held in the demat form. What this means is that no tax is deducted at source from your interest income earned from NCDs.

This does not mean that the interest income is tax free. One needs to file income tax returns and show the interest income so earned from NCDs.

Corporates

The above TDS is applicable for individuals and the TDS applicable for corporates is higher and in most cases around 20.3 per cent including education cess.

Conclusion

It's important to study the TDS on various instruments, so as to enable you to submit form 15G or 15H to save on TDS. Most of the savings instruments in India attract tax, unless it is instruments like PPF or tax free bonds, whose interest is completely exempt from tax. You can save on TDS through various means. To know how to save on TDS and improve your returns click here

GoodReturns.in