Interest on bank fixed deposit is fully taxable. Banks are liable to deduct TDS at the rate of 10 %on the interest earned, if the interest income for the year is more than Rs. 10,000.
However, if the depositor doesn't furnish permanent account number (PAN) with the bank, the lender will deduct TDS at the rate of 20%
So if you want to avoid getting into a situation like this, use following measures to avoid TDS
1)Submit Form 15G or 15H
To prevent the bank from deducting TDS, depositors can submit Form 15G /15H with the bank. Form 15G/15H are self-declaration forms by an individual stating that his or her income is less than the taxable limit.
Form 15G is for individuals aged below 60 years and 15H is for individuals above 60 years of age. Depositors whose total interest income for the year is below the exemption limit and total tax payable for the year is nil, can submit form 15G /15H to avoid TDS deduction.
If you forget to submit these forms at the time of investing in fixed deposits, you can submit them as soon as possible as TDS is generally deducted on a quarterly basis.
2)Distribute your investments across banks
You can also distribute your fixed deposits across banks to avoid TDS. Remember, as per the tax norms, if the interest on fixed deposits across branches of the same bank is more than Rs. 10,000, the lender is liable to deduct TDS. So you will have to spread your investments across banks.
3)Time Your investments
If possible, you can also time the investment in such a way that interest for the year doesn't exceed Rs. 10,000 in a particular financial year. For example, a 12-month fixed deposit of Rs. 1 lakh at 9 per cent could be started in October as financial year closes on 31st March. This way, the interest would split in two financial years and hence TDS will be avoided.
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