Why do people prefer fixed bank deposits? The answer is simple; because of the security and back up that it provides. The types of investment that fall into this category give back guaranteed returns with a rate of interest which is at present between 8.5 to 10 percent.

However, with the fragility of the market rates as well as the probability of the fixed deposit rates taking a sudden fall, it is always advised to lock in the interest rates with a long term objective in mind.

How does it work?

It is now common to receive messages on your smartphone from banks and other financial institutions regarding interest and credit. Every time this occurs, there is a TDS (Tax Deducted at Source) factor to be taken care of.

In the off chance that we ignore such messages and pay no heed to them, there is a high chance that we may end up paying much more than what we earn on a monthly basis.

Hence, an 8.5 percent interest on the bank fixed deposit will not do you much good if you end up getting fined or penalized with a twenty percent TDS for something as simple as perhaps not updating your PAN (Permanent Account Number) Card to the authorized government body.

Read More: Comparison of ELSS Funds with Tax Saving Fixed Deposits

On the other hand, it is true that if you do a proper filing of ITR (Income Tax Return), then the assesse has the chance of reclaiming the TDS (Tax Deducted at Source) but with the only downside is that it will take approximately a complete year before getting the total amount back.

It is due to this reason that it has become essential and mandatory to safeguard and protect your source of income from getting taxed at the source under the TDS section of the Income Tax of 1961.

How does the bank factor into all of this?

Most of the Indian banks and other financial institutions deduct a ten percent on interest income obtained from all the fixed deposit exceeding 10,000 INR in one fiscal year. The same forms a part of the taxable income of the assesse.

So, in case the bank forgets to deduct the above, assesses are mandated to provide the details and have to pay the tax as indicated by the tax slab.

This will definitely have a noticeable effect on the final amount which when received at the time of fixed deposit maturity. The bottom line is to check your 26AS to make sure that the bank has deducted the taxes before the returns are filed.

Tips to Avoid TDS Deduction

• Ensure submitting Form 15G/15H to your bank once per financial year stating all fixed deposit details. 15G caters to tax deduction on income earned from fixed deposits only in case of that being your solitary source of income, whereas 15H serves senior citizens earning with interests.
• Park your cash under multiple names, for instance your family members. Distributing your fixed deposits among your family members’ bank accounts can keep your returns outside the tax purview.
• With 10,000 being the exemption limit of interest on fixed deposits in banks, you must reassure timing your fixed deposits properly.

Read More: Savings Account: for an Easy Banking

One must always remember that every penny saved is every penny earned. So, deliberating the right approach to creating fixed deposits without having to pay heftily on TDS is extremely important.