Fixed Deposits are the first step towards building a portfolio. At any age or income segment, a strong and well-thought-out fixed deposit portfolio can create a sizeable corpus and help you achieve your financial goals with less difficulty. While it will not give the highest returns in the market, it will surely give assurance of return with guarantee and safety, which is the primary focus for most investors. This article discusses how to submit form 15G to avoid TDS on FD interest.
Tax Deducted At Source
As a fixed deposit investor, you need to pay a fixed amount of tax on the interest income earned from FDs. Banks and financial institutions deduct this tax at the source before paying the interest. Hence, it is called as Tax Deducted at Source (TDS). As an investor, it seems unfair to pay tax on the interest earned on an investment. Thus, to give relief to low-income taxpayers and to encourage investors, the facility of tax exemption is available if you do not fall under the taxable bracket.
Interest rates earned on fixed deposits are tax-free up to Rs. 40,000 as per the 2019 Annual Budget for normal citizens and Rs. 50,000 for senior citizens. You need to be aware of the number of FDs you have in one bank/NBFC branch and how much will they be earning. You can utilize an online FD calculator to understand the exact maturity amounts of each FD and plan the tenor of FDs accordingly such that most of your FDs are not clubbed in the same financial year for maturity. This way, you can try and minimize the interest earned in a year.
Tax-Free Interest Income
However, you can receive tax-free interest only if you earn less than the minimum taxable threshold of Rs. 2.5 lakhs per annum. Only then can you ensure that keeping your interest earnings within these limits will give you tax-free interest income.
If your income is above this threshold, then you are liable to pay Tax Deducted at Source at the rate of 10% on the interest earned. It is directly deducted by the bank and reflects in your AS26 form available on the TRACES website.
When your income is below the threshold, even if you cross the interest payments limits of Rs. 40,000 or Rs. 50,000 (as a senior citizen), you can still get a tax benefit by submitting Form 15G or 15H.
Both these forms are issued for tax rebates, but they have subtle differences.
Form 15G is chiefly for those individuals who have not yet attained the age of 60 years. So, any individual whose total income is not taxable under the Income Tax Act is eligible to fill this form. This tax rebate form can also be filled by Hindu Undivided Family and Trust. Any company or firm is not eligible for this rebate.
Form 15H is exclusively for senior citizens. Any individual above the age of 60 whose total income is non-taxable can use this form.
In order to benefit from this provision, you must fill and submit this form at the beginning of the fiscal year to the concerned financial institution. Failing to submit it on time can cause you loss of rebate.
Thus as an FD investor, you need to be careful to submit these forms on time. You can also find Form 15G/H and download them from your bank/ financial institution’s website.
High Interest Rates
If you are an eligible customer for Form 15G or 15H, you must invest with the highest fixed deposit interest rate such as Bajaj Finance FDs for maximum returns. Bajaj Finance is an NBFC providing an FD facility with security and assurance of CRISIL and ICRA ratings. The interest rates offered are highly beneficial at 8.95%, which is 1-2% higher in comparison to the Bank FDs. The minimum ROI offered by Bajaj Finance FD is 51%, rarely found with bank FDs. You are free to receive tax-free interest income from NBFCs like Bajaj Finance FD up to an amount of Rs. 5,000.