Fixed Deposits and Taxes:
Fixed deposits are a popular investment option in the country, with banks offering a range of schemes specially designed to benefit customers. A fixed deposit is typically used as a savings cum growth instrument and can be an excellent way to get the most out of your money. As taxpaying citizens, most of us feel the pinch of paying tax but investing in fixed deposits could help you a decent amount of tax.
Tax Benefits under Section 80C of the IT Act:
Section 80C of the Income Tax Act contains provisions for tax deductions from the gross total income of taxpayers. Individuals who have fixed deposit accounts are entitled to deductions up to Rs 1.5 lakh on the amount invested by them in FDs. While this section contains provisions for a number of investments, taxpayers with only fixed deposits investments can also use it to its fullest. The amount deposited into a FD can be claimed as deductions, subject to a maximum of Rs 1.5 lakh a year.
Avoiding TDS on Fixed Deposits:
The interest an individual earns on his/her fixed deposit is subject to Tax Deducted at Source or TDS, provided the interest is more than Rs 10,000 in a year. Banks deduct TDS ranging from 10 to 20%, depending on whether an account holder has provided his/her PAN details. This TDS can be avoided if an account holder submits Form 15G, stating that he/she is not eligible for TDS, while senior citizens should submit Form 15H for the same.
Quantum of Tax Deduction Permitted:
Account Holders can claim a maximum deduction of Rs 1.5 lakh from their gross taxable income. It should be remembered that this amount is a cumulative addition of all the deductions permitted under Section 80C and not on fixed deposits alone.
Eligibility to claim Tax Deductions:
The following are eligible to claim tax deductions on fixed deposits.
- Individuals who have a fixed deposit in their own name
- Hindu undivided families
When can Tax Benefits on Fixed Deposits be Claimed?
Tax deductions under Section 80C can be claimed during a financial year only, i.e. if an individual opens a FD in June 2015, he/she can claim deductions for the financial year 2015-16 only. While there is no fixed time period for claiming benefits on TDS, it is advisable to plan it in such a way that the interest component is split over two years, thereby eliminating the need to pay TDS.
How to Claim Tax Benefits?
Account Holders can claim the deductions under Section 80C of the IT Act when they file their income tax returns for a particular year. Supporting documents and relevant forms need to be filled out in the case of TDS as well and one should ensure that all information provided is accurate and up-to-date.