Day after day, you ceaselessly toil at work to meet challenging deadlines and juggle complex tasks. At the end of the month, you use the salary to pay off debts and utility bills and purchase groceries. After all these expenses are paid, you may have some extra savings sitting idle. Most articles on personal finances harp about the importance of investing these savings – and why wouldn’t they? Multiplying your idle money is the best way to achieve financial goals.
That said, investing your money is no walk in the park. The market’s volatility spares nobody! However, if you learn to ride the highs and lows, it just might work in your favour. If balancing your portfolio between bear and bull markets is too difficult, how about going for more traditional investment instruments? When it comes to this segment, most people assume it simply consists of gold-based or real estate investments, but there’s so much more!
Fixed deposits are a great way to reap the benefits of compounding interest and avail quick access to liquid funds. There are various types of fixed deposits to cater to different needs. Furthermore, they’re used to build wealth while saving on taxes.
But, what’s the maximum amount that can be invested?
The whole point of investing is to set aside your savings, no matter how small or large. So, you will be pleasantly surprised to find out that while there’s a minimum cap on the amount invested, there’s no maximum limit! It means you can invest a windfall or large portion of wealth into this investment avenue.
Fixed Deposits: Build Wealth & Save Taxes!
In India, older citizens or those with conservative financial practices prefer investing their savings in traditional investment avenues. Fixed deposits are one of them, but it’s comparatively safer than the rest! Unlike gold or real estate, or even stocks and mutual funds, they’re unbothered by the state of market volatility. In most cases, they have a pre-determined interest rate with a tenure. However, the interest earned is taxable.
While that may seem like a glaring problem to some, it’s not quite the case! Choose the best type of fixed deposits, and employ tips and tricks to avail certain tax benefits.
Here are some types of Fixed Deposits and their tax benefits.
- Regular Fixed Deposit
Choose between a fixed tenure between 1 week to 10 days. The interest rate is pre-determined, and the interest earned is liable to TDS. Though, the amount deposited is eligible for tax deductions.
- Special Fixed Deposit
Remain invested for a special period like 333, 399 or 555 days. Also, this type of fixed deposit offers a higher rate of interest with similar tax benefits as a regular term fixed deposit.
- Floating Fixed Deposit
Earn interest as per fluctuating market-based interest rates. The rate of interest will be automatically renewed whenever there’s a change in the base rate. It offers tax deductions under Section 80C of the Income Tax Act, 1961
- Tax Saving-Fixed Deposit
Receive additional tax benefits through this type of fixed deposit. Furthermore, there is a compulsory lock-in period of five years to promote savings and investments. Until the fund has matured, no withdrawals are allowed.
- Recurring Deposits
Regularly invest in small intervals for a long time to receive the benefits of compounded interest and tax benefits. If the interest earned is less than ₹10,000, it’s not liable for TDS.
4 Ways to Save Taxes via Fixed Deposits
After investing a considerable portion of your wealth, avoid losing it to high taxes! Use the following tips to learn ways to save taxes through fixed deposits. It will aid in multiplying your wealth and save additional money for future investments.
1. Use Form 15G/15H
Investors can submit Form 15G to state that they have no taxable income, so the bank will not deduct any TDS on the interest earned. However, senior citizens must opt for Form 15H to avoid TDS on their fixed deposit investments.
2. Split Fixed Deposit Investments
Distribute savings into different fixed deposits to avoid TDS on the interest earned. It will ensure that the total interest earned does not exceed the limit of ₹10,000.
3. Invest between Financial Years
By timing the fixed deposit wisely, investors can split the interest earned between two financial years. It’s another way to ensure that the interest earned doesn’t exceed the limit for TDS.
Example: A fixed deposit of one-year tenure with an amount of ₹1 Lakh should can be invested in September. Since the financial year closes on 31st March, the interest is divided between the two financial years. That way, the investor can avoid TDS or exceeding the limit.
4. Invest under HUF (Hindu Undivided Family)
An investor can start one fixed deposit via their bank account and the other under the HUF (Hindu Undivided Family) account. It will treat both the fixed deposits separately. On this basis, the investor with the HUF account can split the corpus into two heads and avoid TDS.
With these simple ways to save on taxes, you can quickly rise up the financial ladder! Fixed deposits are a great way to let idle savings bloom into a lucrative investment. Looking for the best interest rates on fixed deposits? Hurry and head over to Bajaj Markets to start investing today!