🧾 Understanding TDS on Fixed Deposits

Tax Deducted at Source (TDS) is a system where tax is collected at the source of income. When it comes to Fixed Deposits (FDs) in India, the bank deducts tax on the interest you earn if it exceeds a specific threshold.

👉 Current TDS Limits (as per Income Tax Act Section 194A):

• For individuals below 60 years of age: TDS is deducted if total FD interest exceeds ₹40,000 in a financial year.
• For senior citizens (60 years and above): the threshold is ₹50,000 per financial year.
• If your PAN is not updated with the bank, TDS is deducted at 20% instead of 10%.

TDS is deducted by the bank and deposited with the Income Tax Department. If your total income is below the taxable limit, this deduction reduces your cash flow unnecessarily—unless you take steps to prevent it.

⚠️ Why TDS Can Hurt Your Returns

Most FD investors believe that TDS is a small dent in their interest income. But the problem is deeper:

• 💸 It reduces cash flow during the year.
• 🧮 It prevents compounding: The interest deducted via TDS cannot earn more interest.
• ⌛ You have to wait till you file your Income Tax Return (ITR) to claim a refund—which delays full benefit.
• 📉 For large FDs, TDS can lead to a significant maturity shortfall.

Hence, legally minimizing or avoiding TDS can help improve your FD returns considerably.

✅ Legal Ways to Avoid or Minimize TDS on FDs

Now let’s explore practical and legal methods that can help you avoid TDS deduction.

1. 📝 Submit Form 15G or Form 15H

This is the most effective and widely used method to avoid TDS if you’re eligible.

• Form 15G is for individuals below 60 years of age.
• Form 15H is for senior citizens (60+ years).

By submitting these forms, you declare that:

• Your total income for the year is below the taxable limit.
• You do not owe any tax for the current year.

🛠️ Key Points:

• Submit these forms at the start of every financial year to each bank where you hold FDs.
• Many banks allow online submission through net banking.
• If not submitted, TDS will be deducted even if you’re otherwise eligible for exemption.

2. 🏦 Split FDs Across Multiple Banks

Since the ₹40,000/₹50,000 limit applies per bank, you can divide your FD investments across multiple banks to keep the interest earned at each bank below the threshold.

For example:

• ₹4 lakh FD at Bank A (earning ₹32,000 interest)
• ₹3 lakh FD at Bank B (earning ₹24,000 interest)

🧠 In this way, no single bank pays interest above the TDS threshold—hence no TDS.

📌 Important Note: This doesn’t work across branches of the same bank due to Core Banking Systems (CBS), which aggregate all interest across branches.

3. 📅 Time Your FD Start Dates Strategically

Another smart strategy is to split interest income over two financial years. This is useful if you’re close to the TDS threshold.

🧾 Example:

• Start a 1-year FD in October 2025.
• It matures in October 2026.
• Half the interest will fall in FY 2025–26, and the other half in FY 2026–27.

If each year’s interest remains below the threshold, you can legally avoid TDS.

💡 Pro tip: Use cumulative FDs where interest is compounded but paid at maturity—this lets you control when the interest is realized.

4. 👨‍👩‍👧‍👦 Invest in Family Members’ Names

If your spouse, parents, or adult children have little or no income, you can invest FDs in their name.

Advantages:

• Keeps their interest earnings within the tax-free limit
• Helps avoid TDS altogether

⚠️ Beware of Clubbing Provisions:

• Income transferred to a spouse or minor child may be clubbed with your income.
• To avoid this, gift money to an adult child or parent with no clubbing provisions.

Always consult a tax expert when using this method for optimal planning.

5. 👥 Use Different Account Types (e.g. HUF)

If you are part of a Hindu Undivided Family (HUF), you can open FDs under the HUF’s PAN and enjoy a separate TDS exemption limit.

Other account types include:

• Senior Citizens
• Minors (via guardians)
• Proprietorship or business entities

💰 Using different legal entities helps divide the income and maximize tax efficiency.

6. 🔄 Link FD to Savings or Current Account

Some banks allow you to link your FD to your savings or current account, and instruct the bank to deduct TDS from your savings account, not directly from the FD.

💡 This way, your FD remains intact, and continues to earn full compound interest.

⚠️ Make sure you maintain enough balance in the linked account to avoid auto-withdrawals or penalties.

7. 📚 Consider Tax-Free or Low-Tax Alternatives

If avoiding TDS is a key concern, you might also explore alternatives to FDs:

• Public Provident Fund (PPF) – Tax-free interest, long lock-in
• Tax-Free Bonds – Government-issued, fixed returns, no tax
• Senior Citizens Savings Scheme (SCSS) – For 60+, taxable but high limit
• Post Office Term Deposits – Exempt from TDS up to a point
• Tax-saving FDs – Qualify under Section 80C (though interest is taxable)

✅ These options might offer better post-tax returns while also offering safety and predictability.

8. 👵 Use Section 80TTB for Senior Citizens

Senior citizens (60+) can claim up to ₹50,000 deduction on interest income under Section 80TTB.

This includes:

• FD interest
• Savings account interest
• Post office deposit interest

🔍 Even if TDS is deducted, the deduction can be claimed during ITR filing, potentially leading to a refund.

9. 🧾 File Income Tax Return to Claim Refund

If TDS is deducted even though your total income is below the taxable limit, you can always file your ITR and:

✅ Claim a refund of the TDS amount
🕒 Get the money back after processing (usually within 3–6 months)

🛠️ Always ensure:

• You check your Form 26AS to confirm TDS deduction
• Your PAN is correctly linked to your FD account
• You file the correct ITR form and claim refund properly

While this doesn’t avoid TDS, it ensures you don’t lose that money permanently.

🧮 Example Scenario: Smart Planning in Action

Let’s consider the case of Mr. Arjun, a 65-year-old retiree planning to invest ₹10 lakh in FDs.

Here’s what he does:

1. ✅ He submits Form 15H declaring that his income is below the taxable threshold.
2. 🏦 He splits the amount into ₹5 lakh in Bank A and ₹5 lakh in Bank B.
3. 📅 He starts the FDs in October, so the interest is split across two financial years.
4. 👨‍👩‍👧 He gifts ₹2 lakh to his wife (who has no income), and she opens a separate FD under her name.
5. 🔁 He links the FD in Bank A to his savings account to avoid TDS deduction from the FD principal.
6. 🧾 He checks Form 26AS during the year and files ITR if any TDS was deducted incorrectly.

✅ Outcome: No TDS is deducted, and full compound interest is realized on maturity.

🔍 Summary: Best Practices to Avoid TDS on FDs

Here’s a quick recap of all the methods discussed:

• 📝 Submit Form 15G/15H (if eligible)
• 🏦 Spread FDs across multiple banks
• 📅 Start FDs to split interest across years
• 👨‍👩‍👧 Invest in family members’ names with no tax liability
• 👥 Use separate legal entities (like HUF)
• 🔁 Link FDs to savings/current accounts
• 📚 Explore tax-free instruments
• 👵 Use Section 80TTB deductions (for seniors)
• 🧾 File ITR to claim TDS refund

📌 Final Thoughts

Avoiding TDS on fixed deposit interest isn't about tax evasion—it's about smart tax planning. The law provides several ways to avoid unnecessary deductions if your income is not taxable, or if you can structure your investments efficiently.

Accounts Executive at TAXAJ

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