Despite the rising popularity of mutual funds and stocks, bank fixed deposits (FD) remain the safest investment option for the masses. Bank FDs offer fixed and guaranteed returns, making them the safest and most appealing investment option for a significant portion of the population. As a result, bank FDs continue to be the preferred investment option for many, prized for their security and stability.
Typically, employed individuals opt for FDs in their own name. However, opening an FD in your wife’s name can yield higher returns and substantial tax savings, depending on certain conditions.
Returns On FD
As per FD rules, a 10% Tax Deducted at Source (TDS) applies on interest earnings exceeding Rs 40,000 in a financial year. Conversely, if your wife is a home-maker, opening an FD in your wife’s name can help avoid TDS on interest earnings. Notably, if the total taxable income of an individual is below Rs 2.5 lakh, he/she is completely exempt from paying any TDS on FDs. Additionally, keep in mind that interest earned from bank FDs is considered part of your taxable income.
For instance, if your annual income is Rs 9 lakh, and you earn Rs 1.20 lakh as FD interest, your total taxable income becomes Rs 10.20 lakh.
How TDS Is Levied?
TDS on FD: Banks charge TDS on fixed deposit interest income exceeding Rs 40,000 for individuals below 60 years and Rs 50,000 for senior citizens.
Tax on FD: Report all FDs interest income in your Income Tax Return (ITR), regardless of TDS deduction.
Avoiding TDS: File Form 15G and 15H with your bank to claim exemption from TDS.
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