Every individual looks towards increasing monetary gains from their FD investments, especially by reducing the tax amounts. Wouldn’t it be a dream to enjoy all the returns, but avoid the tax you’re liable to pay? Well that is no more a distant reality.
Read along to know how to make most of your fixed deposits, and avoid paying additional taxes.
FDs – What Should you Know?
Most new investors are advised to start with a Fixed Deposit (FD) . FDs are considered the most popular, safest, simplest and most stable of all investments for beginners.
Though FDs are currently not offering very high returns, Bajaj Finance has come up with higher returns for senior citizens. Though FD seems like an amazing investment, it is not all that fool-proof! Most investors make mistakes when investing in FDs, especially when it comes to evading taxes.
Before you put in your hard-earned money into an FD, you need to know how your FD account functions. You must know about the different kinds of FD and the amount you can invest.
Compare the rates of interest, the modes of interest payment and the tenors. Check if you have the option of withdrawing the FD before maturity. Are there any tax benefits? What is the mode of tax calculation on the interest? Sort these out before you make your investment.
- Withdrawing your money, before maturity
You should not withdraw an FD before it matures—even in an emergency. You will incur a loss. It is best to invest only a part of your savings in the FD. Along with the FD, also keep an emergency fund handy.
Closing your FD account before maturity would invite a penalty. You may have to settle with 0.5–1% less than what you would have earned upon maturity. But, if you need money, you can take a loan against the FD at a lower rate of interest, mostly in the form of an overdraft.
- Include FD interest while filing tax returns
The interest earned on a fixed deposit is taxable as ‘income from other sources’. Hence, if your interest income exceeds Rs. 10,000 per year, it is liable for tax deductions. The interest income that exceeds Rs. 5,000 for company deposits is liable for tax deductions.
You can prevent these deductions with prior planning. Opt for limiting your tax liability to a bare minimum, which helps you reduce the amount you’re liable to pay.
- Being uncertain about FD returns
Are you uncertain about how much you will earn from your FD? You must research well and weigh the rates on offer in the market before investing. Go for an FD that offers you maximum stability and returns. For example, Bajaj Finance has the highest CRISIL and ICRA stability ratings and one of the highest interest rate ranging
If you invest wisely, FDs can promise you high returns for a relatively small investment. But research well to avoid errors of judgement when you invest in FDs. Go through the terms and conditions carefully. Features of FDs, such as assured high returns, low risk, and flexible tenor, are indeed lucrative for a young investor. But, a detailed market research will make it easier for you to pick the best FD on offer. Take your time and make a wise decision.