Wednesday, November 4, 2015

Things to Remember While Opening Fixed Deposit Account

Here are some points you should take note while opening your fixed deposit (FD)/term deposit account in any bank. These tips may also applicable to those who are already having FD account. It covers some ways on how to avoid tax on FD interest.

Anyone can open fixed deposit account for better interest rate as compared to the interest getting from savings bank account. It's always better if you have also savings account with the bank with whom you are going to open FD account. By this way the principal along with interest can be directly credited in your savings account if you want to do so.

If PAN card is not already submitted to your bank, then do it now. Mentioning the PAN will lead to so many benefits and also less tax rates.

Nomination facility is also available while opening fixed deposit. If you are interested you can make use of this feature by providing nominee name. I recommend you to make use of this facility.

Senior Citizens (60 years and above) will always enjoy higher interest rate as compared to others. So don't forget to select this option if you are eligible. Other people can also try to open FD on their parents name in order to enjoy benefits.

Interest earned on fixed deposit is taxable. You should show it in your IT returns if you are regularly filing returns. Do include it if your income comes under taxable income as defined by Income tax department.

For a given financial year if the interest earned is below or up to Rs.10000/- then there is no tax applicable for you. Otherwise TDS will be deducted on interest income. TDS(Tax Deducted at Source) rate is 10% on the interest. If the PAN card is absent then TDS rate is 20% on the accrued interest. Additional 3% education cess will also apply on this.

For instance if you have deposited Rs.1,50,000/- as fixed deposit at an interest rate of 9% per annum compounded annually, then the interest you are going to get is Rs.13,500/- which is greater than the tax limit Rs.10,000/-. So for the entire interest TDS will be deducted at a flat rate of 10% i.e. Rs.1350/- if PAN is already quoted with your account. Otherwise Rs.2,700/- will be deducted.

How to avoid TDS on Fixed Deposit
Always remember that banks are going to deduct income tax as per the law applicable, and in the case no tax is to be deducted you should submit Form 15G or Form 15H (this is for senior citizens aged 60 or above) to the branch after opening term deposit. These forms are available with every bank. You can get them for free.

Note that form 15G is to be submitted at the beginning of the financial year every time. Otherwise TDS will be deducted again for the subsequent years.

Since every bank deducts TDS only when interest accrued is greater than Rs.10,000/- in a financial year, so split your principal amount to different banks so that the interest cannot be reached greater than the limit. By this way also TDS can be avoided. But remember if PAN is already provided then the banks may deduct TDS because they are going to know your total interest earned.

If TDS is already deducted and you have not submitted form 15G/H, then you cannot get back the taxed amount (TDS) from your bank. But still you can get the TDS back by filing Income Tax Return. To do this at first you have to obtain TDS certificate from your bank also referred as Form 16A. Then visit the official Income tax website to e-file your return.

Tax saving fixed deposits are also available with every bank. These deposits comes with minimum five year deposit lock period. Contact your bank if you are interested. You can enjoy tax saving benefit under section 80C of the income tax up to one lakh fifty thousand rupees if your income comes under tax slab. But remember interest earned on tax saving fixed deposit is taxable.

Hope the above tips will be helpful for the people who are new to financial world. I think fixed deposit is the safest way to invest in order to get guaranteed returns. Let me know your queries on FD by leaving a comment below.

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