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Fixed Deposits (FDs) are one of the popular investment options in India, known for their safety and stable returns. However, it's essential for investors, especially newcomers, to understand the concept of Tax Deducted at Source (TDS) on FD interest and how to leverage FDs to save on income tax. In this comprehensive guide, we will explore how TDS on FD interest works and various ways to optimise tax savings through FD investments.Understanding TDS on FD InterestTax Deducted at Source (TDS) is a mechanism by which the government collects taxes at the source of income generation. When it comes to FDs, TDS is applicable on the interest earned from your fixed deposits. Here's how it works:TDS Threshold: TDS on FD interest is applicable if the total interest income from all your FDs with a particular bank exceeds ₹40,000 in a financial year. If you are a senior citizen, this threshold is higher at ₹50,000. In the case of FDs issued by NBFCs, the threshold limit for tax on FD interest is ₹5,000.TDS Rate: The TDS rate on FD interest is 10% if your PAN (Permanent Account Number) is furnished to the bank. If you don't provide your PAN details, the bank will deduct TDS at a higher rate of 20%.Form 15G/15H: If your total income is below the taxable limit, you can submit Form 15G (for individuals below 60) or Form 15H (for senior citizens) to the bank. This form declares that your income is below the taxable limit, and therefore, TDS should not be deducted on your FD interest. However, if your income exceeds the threshold during the year, you will have to pay the taxes at the time of filing your income tax return.Issuer’s Responsibility: It is the issuer's responsibility to deduct TDS and deposit it with the government. They will provide you with a TDS certificate (Form 16A) showing the details of TDS deducted.Strategies to Save on Income Tax through FDsNow, let's explore various strategies to minimise your tax liability while investing in Fixed Deposits:Consider Tax Saver FDs: Tax Saver FDs, also known as 5-year Fixed Deposits, are a tax-saving instrument under Section 80C of the Income Tax Act. You can invest up to ₹1.5 lakh in a financial year, and the amount is deductible from your taxable income. This means you can save on income tax by investing in Tax Saver FDs.Split Your Investments: If you have a substantial amount to invest in FDs, consider splitting it across different banks or financial institutions. By doing this, you can keep the interest income from each FD below the TDS threshold. However, ensure that you comply with the KYC (Know Your Customer) requirements at each bank or institution.Use Form 15G/15H: As mentioned earlier, if your total income is below the taxable limit, submit Form 15G or 15H to the bank/NBFC to prevent TDS deduction on your FD interest. Remember to do this at the beginning of each financial year.Cumulative FDs: In cumulative FDs the interest is reinvested and paid at maturity, can be tax-efficient. Since the interest is not paid out annually, there is no immediate tax liability. This strategy can be useful for individuals who want to defer their tax liability to a later date.Plan Withdrawals Wisely: If you have multiple FDs, plan your withdrawals strategically. For example, if your total income for a particular financial year is expected to be lower due to various deductions, consider making withdrawals from your FDs in that year. This can help you stay within the taxable threshold and avoid TDS.Offset Interest Income with Deductions: Apart from Section 80C, explore other deductions available under the Income Tax Act. For example, deductions under Section 80D (health insurance premium), Section 24(b) (home loan interest), and Section 10(14) (HRA) can help reduce your taxable income.ConclusionFixed Deposits (FDs) are a straightforward and secure investment option for individuals new to the world of investments. However, it's crucial to understand the implications of Tax Deducted at Source (TDS) on FD interest and how to leverage FDs to save on income tax.By following the strategies outlined in this guide, such as investing in Tax Saver FDs, using Form 15G/15H, and planning withdrawals strategically, you can minimise your tax liability and maximise the returns from your FD investments. Remember that tax laws and regulations may change over time, so it's essential to stay updated and consult a tax advisor or financial planner for personalised advice based on your financial goals and situation.

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