Amidst the growing interest of common people in mutual funds and the stock market, bank FDs remain the safest investment option. Investors receive fixed and guaranteed returns in bank FDs. This is why a large section of the population still considers bank FDs to be the best and safest investment. Usually, employed individuals open FDs in their name. However, if you open an FD in your wife’s name, you can not only earn substantial returns but also save a significant amount of money.
TDS Deduction on FD Interest Above ₹40,000
As per FD rules, if the interest earned on a fixed deposit exceeds ₹40,000 in a financial year, a 10% TDS (Tax Deducted at Source) is applicable. However, if the FD is in your wife’s name, you can avoid this TDS deduction. This is because, in most families, women are either in a lower tax bracket or are homemakers. If your wife is a homemaker, you won’t need to pay any TDS on the interest earned from the FD.
No TDS for Taxable Income Below ₹2.5 Lakh
Individuals with a total taxable income of less than ₹2.5 lakh are exempt from TDS on their fixed deposit interest. It is also essential to understand that interest earned from a bank FD is added to your total income. For example, if your annual income is ₹9 lakh and you earn ₹1.20 lakh as interest on FD, your total taxable income will become ₹10.20 lakh. You will then need to pay tax based on this revised income.
Save Taxes by Creating an FD in Your Wife’s Name
By making an FD in your wife’s name, you can avoid paying additional taxes on the FD interest. This strategy is especially useful if your wife falls in a lower tax bracket or has no taxable income. It ensures that the interest earned is either tax-free or taxed at a lower rate, saving you money.
Joint FD Accounts Can Also Help Reduce Tax
Another effective way to save on taxes is by opening a joint FD account and naming your wife as the first account holder. In such cases, the interest earned can be attributed to your wife’s income, which may fall in a lower tax slab or even be exempt from taxation. This approach can help you significantly reduce your overall tax liability while enjoying the benefits of a fixed deposit.
How to Create an FD in Banks
- Select a Bank: Choose a bank offering competitive FD rates and tenure options.
- Visit Branch or Online Portal: Go to the branch or log in via internet banking/mobile app.
- Provide Details: Fill in the FD application with the deposit amount, tenure, and type.
- Submit Documents: If required, provide ID proof, address proof, and photos.
- Deposit Funds: Pay the FD amount via cash, cheque, or online transfer.
- Receive Confirmation: Get the FD receipt or digital acknowledgement.
- Track and renew your FD upon maturity if needed.