Fixed Deposit Investor- Do you lose on taxes when you withdraw

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Are Fixed Deposits really the best ways to earn money? Most people place their trust in FDs since these are the safest and most assured ways to grow their wealth. There are several fixed deposit benefits and chief among them are the interest rates which are higher than savings bank deposit rates. In spite of the advantages of fixed deposits, the question of taxes creeps in. Do you lose money on taxes when you withdraw your FD?

While choosing a fixed deposit, you should always go for lenders offering the best FD Interest rates. You can also consider investing in Tax Saver FDs which have fixed durations and you cannot prematurely withdraw the money. These help you save taxes which you anyway have to pay by way of TDS. The interest earned on any fixed deposit is completely taxable in case it crosses Rs.10,000 annually. The lender will deduct 10.3% as TDS prior to you getting the amount. In case you fall in the higher income bracket (annual income exceeding Rs.5 lakh annually), you will have to pay higher taxes on this income which will be clubbed with your regular income.

Even where TDS has not been deducted, you have to state the income earned from fixed deposits when you file your tax returns. In case your income does not cross the basic tax exemption limit, you can get the TDS as a refund by filing returns. To avoid TDS, submit Form 15G in case your income falls below the taxable threshold. Senior citizens should submit Form 15H. Taxes on fixed deposits cannot be avoided even if you invest in the name of your kids or your spouse. You will not have to pay taxes on the money that you give to them, if you invest the same, it will be added to your income and will naturally be taxed as per the applicable rates.

Investing in a tax saver FD can help you claim the amount invested under Section 80C up to Rs.1.5 lakh. This can be filed as a deduction from your annual income. Only HUFs and individuals can invest in tax saving fixed deposits and they have to be of a minimum amount which varies, depending on the lender. These FDs come with lock-in periods of 5 years and you will not be able to prematurely withdraw the money or get a loan against the same. These fixed deposits can be held in either Joint or Single modes. In case of the former, the benefits will accrue only to the first holder.

The interest on the deposits will be payable on a monthly/quarterly/half-yearly/annual basis or can be re-invested if you want to grow your wealth faster. Most lenders have nomination facilities available for these tax saving fixed deposits. Like regular fixed deposits, senior citizens get slightly higher interest rates in case of tax saving FDs as well.

Tax saving FDs are the best way to combat loss of interest income due to taxation. In any case, you will lose some amount to taxes when the FD matures. This is therefore the best way to minimize tax outflows on your investment.

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