Minimising TDS on your Bank Fixed Deposit

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Tax deduction at source (TDS) could have a significant impact on the maturity amount of your bank fixed deposits. It assumes greater importance especially for those who are conservative in their investments and rely heavily on bank fixed deposits for generating income. In case of senior citizens, whose only source of income is the interest earned on fixed deposits, any leakage could lead to some discomfort.

So, is there a way to work around TDS and have minimum leakage? Yes. Proactive tax management is the order of the day if your situation demands that every penny needs to be counted. We tell you how to minimise your losses.

How TDS works?

According to present income tax guidelines, banks are required to levy 10 per cent TDS on deposits if the total interest earned on your fixed deposits in a bank branch is more than Rs10,000 in a fiscal. At the end of every fiscal, i.e., 31 March, tax is deducted on the basis of interest accrued on the fixed deposit(s), even if this interest has not been credited. Every time interest is paid on your fixed deposits, banks check whether it is subject to TDS and, if it is the case, tax is deducted.

Saving TDS

One of easiest way adopted by many depositors is to spread their investments across various branches so that the interest earned in a particular branch is below Rs10,000 in a financial year. However, do remember that you will still need to account for the interest earned while filing your income tax returns for the year. So, if your income is taxable, then you will need to pay taxes according to your income bracket. If you are below 60 years and your tax liability after all deductions and exemption is expected to be nil, then you can avoid TDS by submitting Form 15G. If your interest income is expected to be Rs10,000, by presenting the Form 15G what you are saying is that your income will not be taxable on this income even if you include it to your total income. You need to fill this form while booking your fixed deposit and at the beginning of each financial year, thereafter, till the maturity of your fixed deposit.

Gifting or booking a fixed deposit

Investors often book fixed deposits in the name of non-earning family members such as spouse and minor children. However, Tax liability is calculated on the first applicant's name. In case of a minor, the interest income will be clubbed under the income of the guardian and, accordingly, tax liability will be assessed. Therefore, in case the deposit is in the name of a minor, the bank would still levy TDS. In case the deposit is in the name of a non-earning family member, he or she will have to submit From 15G. "If the money is gifted to a non-earning member and the deposit is booked in his or her name, then the person has to submit a declaration saying his or her income is not taxable. However, when income tax is calculated, it will have to paid by the donor or earning member.

Senior citizens

For senior citizens aged between 60 years and 80 years and whose only source of income is from fixed deposits totalling less than Rs2.5 lakh, after all the deductions and exemptions, they can avoid TDS by submitting Form 15H. Senior citizens above 80 years enjoy tax exemption on taxable income of up to Rs5 lakh in a financial year. Therefore, for those of you who are 80 years or older, you may submit Form 15H if your taxable income is below Rs5 lakh.

When FDs across branches makes sense. For senior citizens whose tax liability is nil and who want to avoid visiting the bank to submit Form 15H, it might be better to spread their investments in different branches or banks to avoid TDS. Often investors complain that even after filing Form 15G or Form 15H banks are found wanting when it comes to processing the forms. In most cases, an investor realises that something has gone amiss only when they learn that TDS has already been deducted. In some cases, we have found that the bank has deducted TDS in spite of submitting Form 15G/H, because the bank had not processed the same. That's why honest taxpayers often prefer to put deposits in different branches. In such cases, you can file your income tax return once a year.

How to get TDS refund?

If your tax liability is nil, but the bank has levied TDS on the interest earned on your fixed deposit then you can claim refund by filing your income tax return. Customers can take their TDS certificates (Form 16A) from banks and also check the amount deposited to the Income Tax Depart-ment based on their PAN number on the Income Tax website under certificate AS26. Based on the same, customers can apply to get the refund from the IT department.

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