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Best Ways to Save Tax with a Fixed Deposit

By Chanel Rick - Feb 22,2022
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Whenever it comes down to investments, most people usually opt for Mutual Funds. They’re great for people with a high-risk appetite, and in turn, they can potentially provide them with high returns. However, what if you are investing to avail tax benefits? In that case, you need to explore the option of investing in Fixed Deposits

By investing in a Fixed Deposit, you can avoid engaging with a volatile market. Your investment will be secure as it gradually, over the tenure, collects interest. While high stakes individuals may find the lower returns discouraging, taxpayers can reap the benefits of investing in a Tax Saver Fixed Deposit. 

Features of Tax Saver Fixed Deposits 

  1. The tenure can last between 5 to 10 years. 
  2. Interests rates varying between 5.30% to 6% p.a.
  3. Depending on the bank or NBFC, the minimum deposit can range between Rs. 100 to Rs. 1,50,000 lakhs p.a. 
  4. 5 year lock-in period. 
  5. Investors can avail tax relief. 
  6. In case of your death, you have the option to choose a nominee to receive access to your account. 
  7. If it’s a joint account, only the primary (first) holder of the account will receive tax benefits. 
  8. Senior citizens receive higher interest rates. 

With features that secure your earnings with zero risks, you may be wondering about who is eligible to invest in Tax Saver Fixed Deposits. You need to be an Indian resident, individual or belong to Hindu United Families (HUF). 

Still uncertain about investing in a Tax Saver Fixed Deposit? Take a look at these benefits. 

  1. You can enjoy tax-saving benefits for 5 years, owing to the lock-in period. 
  2. There are no recurring payments required. 
  3. With no chances of premature withdrawals, this ensures that your money stays intact until maturity. 
  4. You receive higher interest rates, unlike other types of Fixed Deposits. 
  5. There are zero risks to your deposit in this form of investment. 

How to Save Tax on FD Interest? 

When you invest in a Tax Saver Fixed Deposit, the amount you invest is exempt from tax-based deductions. However, TDS is applicable on the interest earned in a financial year, if the interest earned exceeds Rs. 10,000. 

However, there are 5 ways you can prevent losing your interest to tax deductions. 

1. Submit Form 15G or 16H

Form 15G is a self-declaration form that you can submit to the bank, stating that you don’t possess any taxable income. This is applicable for those whose income falls under the basic exemption limit. Senior citizens can submit Form 15H to avail the same provision.  

2. Divide Your Fixed Deposit

If you belong to Hindu United Families, then you can start a personal fixed deposit and another under the HUF account. These accounts will be treated as separate. 

3. Plan Your Fixed Deposit Tenure

You can pre-plan your Fixed Deposit’s tenure in a way that it coincides within 2 financial years. However, ensure that your tenure crosses over 31st March when the financial year closes. By following this, you can split your interest between 2 financial years. 

4. Submit Your PAN

You need to submit your PAN card while investing in a Fixed Deposit. In case you don’t or forget to, the bank will deduct taxes at a higher rate. 

5. Split Your Deposit 

Choose to invest your deposit in Fixed Deposits between different banks. This will make sure that neither of them acquires an interest that exceeds the amount of Rs. 10,000 

Also Read: Things to Know About the Tax Savings Benefits of ULIP

Does all of this sound too good to be true? Fortunately, that’s not the case! Just follow the procedure of applying for Fixed Deposits, and start indulging in the secure and risk-free perks of Tax Saver Fixed Deposits. 

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