Many investors prefer fixed deposit over other instruments as it provides good returns and does not expose their investment to market volatilities. However, the bank fixed deposit rates in India have seen a downward trend due to the economic slowdown, repo rate cuts, and other reasons. To ensure better returns, you must consider the tax exemptions that you are eligible for.
Banks will deduct TDS (Tax Deducted at Source) if your interest earnings cross Rs. 40000 or Rs. 50000 (applicable to senior citizens only). However, if your income does not fall under the taxable bracket, then you don’t need to pay TDS even if your interest earnings cross the threshold limit. In such cases, you can submit form 15G/15H to avoid TDS deduction.
Benefits of form 15G/15H
- Form 15H is applicable for senior citizens i.e. citizens who are above 60 years of age whereas form 15G is for those who have not crossed the age limit of 60 yet.
- Form 15G/15H should be filled and submitted at the beginning of the financial year to avoid TDS deduction. These forms ensure that you receive tax-free returns only if your tax liabilities are zero.
- Form 15H/15G can be submitted even if you have invested in recurring deposits or post office saving plans like SCSS and POMIS.
- If you fail to submit these forms on time, the TDS will be deducted automatically and the financier will not be able to refund it. In such cases, you can claim deductions by filing an ITR (Income Tax Returns).
What are the other ways of earning better returns?
You can follow these measures to maximize your FD returns:
Invest in a tax-saving FD
A lower FD interest rate will generate nominal returns and your interest earnings will be further reduced if your income falls under a higher tax bracket. To ensure surplus returns, you can invest in a tax-saving FD as it makes you eligible for claiming tax deductions as per section 80C of the Income Tax Act, 1961.
However, with tax-saving FDs, you cannot withdraw your deposits prematurely, and neither can you apply for a loan against a tax-saving FD. Also, you can deposit only up to Rs. 1,50,000 in a year and its minimum lock-in period is 5 years.
Invest in corporate FDs
Some NBFCs are providing much higher interest rates than bank FD rates. For instance, Bajaj Finance offers an interest rate of up to 6.85%. This ensures that you earn sufficient returns even if your net income falls under the taxable bracket.
Split your deposit amount
You can split your savings into smaller amounts and invest them into multiple fixed deposit plans. Also, you should ensure that you pick a different tenor for each deposit. It means that your FDs will mature on varying dates, and therefore, your interest gains will also be calculated as per different financial years.
As a result, your interest income might not exceed the minimum threshold and this will allow you to receive more returns at maturity. The multi-deposit facility from Bajaj Finance enables you to deposit your savings in multiple FD plans and types.
A flexible tenor ranging between 12 and 60 months can be selected for each of your deposits and you only need to submit one cheque to deposit in all the FD accounts at once.
If you are above 60 years of age, you will get an extra 0.25% interest rate on opening a senior citizen account. Also, if you have not turned 60 yet, then you can earn an additional 0.10% FD rate by investing through an online FD form. Bajaj Finance FDs have received an MAAA/stable rating by ICRA and FAAA/stable rating by CRISIL. These are the highest ratings of these credit rating institutions that means that your investments are safe.