Most investors are keen on finding investments where they can deposit their investments and stay at ease. However, investors tend to forget the impact of tax accumulation on long-term investments. Indian banks deduct Tax Deducted at Source (TDS) on interest earnings of regular fixed deposits. This is over and above the tax deducted on your taxable income.
If you are looking for a long-term investment with a lump sum amount of investment or staggered over a period of time with tax benefit – you can look at fixed deposits as your first choice. You can utilize the tax benefits on fixed deposits to reduce your tax burden and earn handsome returns as well. Fixed deposits can offer lucrative fixed returns with the flexibility to set maturity timelines according to investor’s preferences. The longer the maturity, higher is the rate of return earned.
Let us see how you can save taxes via fixed deposits.
Utilizing Tax-Saving fixed deposits
Banks offer Tax-Saving Fixed Deposits for a period of 5 years, which grant tax exemption up to the amount of Rs 1.5 lakhs under section 80C of Income Tax Act, 1961. These can be utilized to reduce your tax burden.
You can do smart tax planning using a combination of tax saving fixed deposits along with cumulative option. Also, if a fixed deposit offers higher rates than banks, like that of Bajaj Finance FD, you can plan taxes and wealth creation. Bajaj Finance offers a competitive rate of return of 8.75% for regular depositors with essential advantage to senior citizens of an extra 0.35% and additional 0.25% on every renewal.
Tax Deducted at Source (TDS)
Fixed deposits, though being taxable, offer high returns with effective measures to set off the TDS.
Many investors might be unaware of how to bypass TDS on fixed deposits, resulting in lesser returns. You can file Form 15G and 15H to avoid TDS on interest earned from fixed deposits and ensure high yields.
Form 15G is applicable for those below the age of 60 years and with no taxable income. Whereas, Form 15H is applicable for investors above 60 years of age who fall outside the taxable bracket.
Apart from this, you can offset TDS by investing in multiple FDs and splitting the maturity of your FDs into two financial years. Furthermore, you can diversify your fixed deposits among various financial institutions, maintaining interest levels below Rs 40,000 (as per interim budget) to avoid TDS.
Another method is investing separately as an individual, HUF or a business unit in order to diversify your investments in FDs.
If you go for company fixed deposits like Bajaj Finance FD, you will not be required to pay TDS up to an interest income of Rs 5,000. The cost-benefit analysis of high yielding fixed deposits and paying TDS on fixed deposits is made simple with company fixed deposits. Also, highly rated company fixed deposits ensure the safety and stability of your investments. For instance, Bajaj Finance FD is rated FAAA/Stable by CRISIL and MAAA/Stable by ICRA.
You can take up these measures to avoid TDS. Bajaj Finance Fixed Deposits offers the flexibility to choose tenor and interest payment frequency as per your preference. Thus making it easy for you to create a portfolio of fixed deposits being invested in such a way that it yields high returns along with avoidance of tax. You can use online FD calculator to calculate your returns and know different modes of setting off TDS.