June 29, 2012 11:31 am
Please let me know, if there is any way, I can avoid income tax on FD’s?
Does FD’s more than 1yr term are tax-exempted?
Not possible, unless you are within the minimum tax slab. Income from FDs is treated as Income from Other sources and get taxed as normal income.
Safety doesn’t generally come with Tax benefits, with an exception of Tax free bonds, PPFs & PFs. If you are after long term investment options which should give you good growth, then you would need to explore the opportunities of investing into Equity markets. Currently, if you invest over 1 year period, the returns are tax free.
1. Doesn’t the term of FD matter?
2. What is the other alternate option, wherein its safe and the returns(interest) are not taxed?
Dear Sunil, If you do have an old PPF account at least 8-10 years old where the outstanding balance 3Y before was around 2L Rs. You can invest 1L Rs. on 1st of every april, can save income tax on the invested amount & at the same time can withdraw the same 1L Rs. from the prev. balance.
Regarding on going investments – The inflation is the real danger in debt products not the uncertainty of return of capital? Safety is a relative thing & it may change as per one’s own definition.
For simplicity of the discussion, you may invest in FMPs of just more than 1Y duration. Not as safe as bank FDs but surely these are tax efficient. By tax efficient – I mean less tax than your FD if you are in 20 or 30% tax slab.
Dear Mr. Ansal.
Its very good explanation about investing 1L in PPF & withdrawing 1L from Old PPF. Sir, here I would like to know, suppose from Bank FDs I am getting an interest income of more than 2L & I have filed Form 15G to avoid TDS on my interest income. Again I am investing 1L in my PPF which is in force. So still is it necessary to file returns as my income exceeds 2L.
Dear Sunil, FDs are liable to TDS if the interest is more than 10K Rs. in a FY. For a person whose income falls in zero tax slab i.e. 2L for non Sr. Citizen & 2.5L for Sr. Citizen & 5L for Very Sr. Citizen, the person can file form 15G for case 1 & 15H for case 2 & 3 to avoid TDS.
For a normal person having income more than that zero tax slab, investing else where is a good idea.
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