Fixed Deposits are among the most preferred methods to save wealth in India. You deposit a large amount into your banking institution for a certain period of time at an agreed-upon interest rate. You will receive the money you deposited plus compound interest at the conclusion of the term. They are indeed a secure investment that provides decent returns and is simple to start.
Fixed Deposits are also known as term deposits. However, you must pay a portion of your interest income as tax. But don’t worry! There are many instruments available online that can help you save taxes on Fixed Deposits. Form 15G is one of these instruments. Account-holders under the age of 60 can declare non-deduction of TDS from banks if specific qualifying conditions are met. However, there are several circumstances in which you will not be eligible for Form 15G. This is where the other instruments come into play. This blog will provide a guide on the instruments apart from Form 15G to save taxes on FDs.
But first, let’s go through how Form 15G works.
How does Form 15G work?
Form 15G is a self-declaration document that a person sends to the banking institution in order to demand that TDS on income from interest rates not be deducted since their income is less than the basic exemption level. It is necessary to provide Permanent Account Number for this. Most banks enable you to file these documents online via their website.
However, it must be noted that this document does not exempt you from paying taxes. It only delays the process. By completing Form 15G, you state that the bank is not required to deduct TDS from your account and that you will pay your tax amount directly when you file your yearly income tax returns. If you fail to provide this paperwork, you may always request a refund from the Income Tax Department for the extra TDS taken from your account. Read more about Form15G at https://www.turtlemint.com/tax/form-15g-and-15h/.
Instruments Other Than Form 15G for Saving Taxes on Fixed Deposits
- 5-year Tax saving Fixed Deposits
An FD account may help people and businesses save money for tomorrow in a variety of ways. The standard Fixed Deposit accounts enable you to place the account’s duration according to your needs. In addition to normal Fixed Deposit accounts, several banks provide a five-year FD program for tax savings. As per Section 80C, you can seek an income tax reduction by depositing money in a 5-year Fixed Deposit program.
By depositing in a fixed deposit tax-saving account, each investor can seek a reduction of up to 1,50,000 INR per year. Some of its characteristics are as follows:
- A 5-year lock-in period
- Earned interest is taxed as per slab.
- The interest rate usually varies from 5.5 percent to 7.75 percent and changes from time to time.
- Debt MF with Indexation Benefits
As an alternative to bank fixed deposits, you can also choose to invest in debt mutual funds, with the same risk allocation and better tax efficiency. A debt mutual fund is a type of mutual fund that is well-known for producing steady returns. Although equity funds primarily participate in equities and stock-related products, debt mutual funds primarily participate in fixed income marketplace assets.
However, if you invest in Debt mutual funds for a tenure of more than 3 years, i.e. 36 months, then you can claim indexation benefits. The indexation advantage, which allows you to owe tax only on gains exceeding inflation, is a significant benefit of these debt mutual funds. Since indexation is often connected to the number of years held, it can be increased by strategic maneuvers.
Trick: By subscribing in March and collecting in April, you may take advantage of the 4-year indexation benefit. Indexation benefits are defined by tax regulations on the foundation of fiscal years. Therefore, if you invest in March 2021, it lands in the fiscal year 2020-21, and if you redeem in April 2024, it falls in the fiscal year 2024-25, putting you qualified for 4 years of indexation.
- Section 80 TTB
The 2018 Finance Budget has opted to include a variety of perks for our older residents. This introduced the establishment of a fresh section – 80 TTB. It is one major significant modification for older folks. Section 80 TTB is a rule that allows a person who is an Indian resident senior citizen at any point during a Fiscal Year (FY), to reduce a set value from his total taxable income for that Financial year. This part is effective as of April 1, 2018. The deduction from taxable total earnings of less than 50,000 INR or a quantity from bank deposits interest is permitted.
Note: This benefit is available for senior citizens more than 60 years only and is not applicable to younger residents of the country.
- Form 15H
Form 15H is a self-declaration document that functions in the same way as Form 15G. The main distinction is that it is only available to residents aged 60 and over. It must be filed annually to each branch of the financial institution where you earn interest.
Fixed deposits (FDs) are among the most preferred and secure ways to save money. You deposit a fixed amount into your banking institution and you receive interest on it. When you invest, you also decide how long you want the money to be left in the account- this period is called the tenure. At the end of the tenure, you get back your original sum plus interest. Though this interest income is taxable, there are several instruments available online to help you save FD taxes.