Fixed Deposits are widely known for their safe and secure nature. It also provides a lot of liquidity as it is easy to create or break. Therefore, besides being safe it is also said to provide good liquidity measures for its depositors.
So far it is good, but there is a small issue with FDs and that is it is not tax efficient. You need to pay taxes as per your income bracket on the interest earned through FDs. However, you can reduce tax liability by transferring the income on somebody’s name who has a lesser tax liability.
Tips to know how to avoid tax paying on FD
For example, a person falls in 30% tax bracket. But his mother falls under 0% tax bracket her income being zero. If the person transfers money to his mother’s name and she deposits the money in a FD. In the first case the person is levied tax but in the latter case no tax is levied as his mother falls under 0% tax bracket.
There can be some additional gains too as his mother is a senior citizen. But there are some ifs and buts to this rule. To know more about tax on FD mother and father.
Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.