Fixed Deposits are a popular investment option amongst Indians. Under FDs, funds are locked in for a specific period till maturity, and the bank, in return, pays interest at a fixed rate on these deposits. The FD interest rates vary based on the tenure you opt for. It is highly convenient to open an online Fixed Deposit today thanks to Online Banking mediums.
You can find the best rates online and then open your account. FD tend to better your earnings. But did you know that an FD Account can save your taxes?
Saving taxes on FDs
The interest you earn on your FD is taxable. Here, you add the interest to your taxable income and pay tax on it based on the slab you fall under. However, there are a few provisions which you can use for saving taxes, these include:
Section 80C
Section 80C of the Indian Tax Act offers tax deductions for investments made by investors. Banks and the post office provide a unique instrument called the Tax-Saving FD. When you invest in such FDs, you can claim tax deductions of up to Rs. 1.5 lakh, depending on the deposit amount. Depending on your tax slab, the tax savings vary. However, the interest earned is taxable. There are no exemptions or deductions on the interest.
Section 80TTB
For senior citizens, the Budget in 2018 introduced Section 80TTB, which offers a deduction of Rs. 50,000 on Senior Citizen FDs. The section does not define the bank interest. This means it includes interest from FDs, RDs, and Savings Accounts. Senior Citizens can utilise this deduction under this section to gain the benefit of FD interests.
Tax deduction services
Banks can deduct tax on FD interest if your total income in a year exceeds Rs. 10,000. However, in the Budget 2019, the limit for deducting taxes on interest income increased to Rs. 40,000. This means the total interest income should not exceed Rs. 40,000 for tax deductions. If your interest income exceeds this limit but your income does not, then you can fill out the Form 15G/15H and submit it to your bank.
If you hold an online Fixed Deposit, you can submit these forms online to the bank as well. Once you submit these forms, the bank does not deduct taxes on your FD income. This way, you can pay taxes as you assess your income while filing the income tax returns.
Conclusion
FDs are an excellent investment option. If you consider the tax savings from the investment, you can plan your investments better and ensure you claim the benefits from the mentioned provisions.
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