The only problem is that the way FDs are taxed has a huge impact on the cumulative effect. This means that if your FD profit in a given year exceeds 40,000, tax is deducted at 10%. This is deducted every year, whether it is a 2 or 5 year FD.
How to avoid?
I guess everyone here makes more than 2.5 liters a year. So submitting Form 15G/Form 15H is of no use to you.
The only hack left is to split your FD into multiple banks. Do not store more than 6L in a single FD. For what? Because at an interest rate of 7%, this amounts to 42,000 profits, so 4,200 taxes will be deducted. Instead, divide the 6L into 2 banks.
7% interest on 3L only represents a profit of 21,000, which is below the tax limit and therefore no tax will be deducted.
Note: You still have to pay income tax according to tax returns. But then you can pay from your savings account instead of it being deducted from the FD as its interest rate is higher.
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#financewithsharan #fixeddeposit #bank #tax #taxes #moneymanagement #moneytalks
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