How to Reduce Tax Deducted at Source (TDS) on Salary & FD?

Income Tax

How to Reduce Tax Deducted at Source (TDS) on Salary & FD?

Registrationwala

TDS full form is Tax Deducted at Source. It refers to the amount which gets deducted by the employers from salary and then gets deposited with the government on the employees’ behalf. 

 

Under the Income Tax Act, 1961, TDS deduction is mandatory. Every employer is liable to deduct TDS on salaried income as per the applicable slab rates. TDS is applicable on FDs as well. Banks deduct a TDS when crediting interest on a fixed deposit to one's account.

 

Although it is mandatory to pay TDS on salary and FD, one can always reduce the TDS amount which gets deducted. In this article, we will provide you with the required information regarding how to save TDS on salary and FD.

How to Save TDS on Salary?

Everyone likes to have a penny saved for their own expenses rather than giving it away. Have you ever wondered whether you can reduce TDS on your salary? Well, you certainly can. How can you reduce TDS on your salary? Well, there are many ways to do this. Let’s find out different ways to save TDS on your salary:

Claim HRA

HRA full form is House Rent Allowance. To claim house rent allowance, an employee must produce his particulars such as name, address and PAN of the landlord in cases where the aggregate rent paid during FY goes beyond Rs. 1 lakh. A declaration in form 60 shall be obtained in unavailability of the landlord's PAN card.

Medical Insurance Premium and Claim 

To save TDS through medical insurance premium and claim, employees are required to furnish a tax certificate which goes by the name of 80D tax certificate from insurance companies in support of the deduction of premium paid along the bank statement or passbook's copy as proof of such payment. 

 

Further, an employee might also have to produce receipts/bills for any health routine check-up they have undergone during the FY.

Food Coupons

A sum of Rs. 50 per meal is exempt on meal vouchers. This means that for a 25-day-month working period, the meal vouchers can be tax exempt to the extent of Rs. 2,500 per month, considering lunch and dinner (Rs. 100 x 25 days). In case your company does not provide food coupons, you may recommend them to consider providing them.

Donations made to Trusts and Charity

If an employee makes a donation towards an authorized trust, charitable organization like a notified temple, national defense fund, PM’s national relief fund and so on, then a proof for the donation needs to be submitted in the form of a receipt which contains all particulars including name, address and PAN of trust or institution, name of donor, registration number and its validity.

Interest On Loan Taken For Residential Property

For this, particulars such as the name, lender’s address and PAN, bank or an authorized instutution’s certificate containing details such as the date on which the loan was availed, amount of installment and the chargeable interest are required to be submitted.

LTA

LTA full form is Leave Travel Allowance. LTA refers to the tax free allowance offered by the employer to the employees as part of their salary component. Under LTA, the costs incurred by the employee on taking a leisurely trip are allowed as tax free expenses.

 

If your salary break-up doesn’t include travel allowance, you can request your employer for the inclusion of the same in your salary break-up. Before claiming an exemption, every tax paying citizen should incur the travel allowance expenses.

NPS

Under section 80 CCD (1) of the Income Tax Act, an employee's personal contribution may be deducted from taxes up to 10% of their base pay (basic plus DA). This falls within the Income Tax Act's Section 80 CCE's total cap of Rs. 1.50 lakhs. Under 80 CCD (2), up to 10% of Basic & DA (no maximum amount of money). This rebate exceeds the Rs. 1.50 lakhs 80 CCE limit. 

 

Subject to a limit of Rs. 50,000, the employees of an organization can choose to voluntarily contribute an extra Rs. 50,000 (or more) to their NPS Tier I account and claim a tax deduction for it under section 80 CCD 1(B). 

 

For saving TDS on salary through National Pension Scheme (NPS), a copy of deposit receipt for the amount deposited during FY and a copy of relevant extract of bank statement must be provided. 

Save TDS through Section 80C Benefits

Apart from the above-mentioned ways to save TDS on salary, ensure that you utilize the entire amount for exemption under section 80C. One of the most preferred routes to reduce TDS on salary would be by investing in PPF. PPF full form is Public Provident Fund. Section 80C offers you a tax deduction of up to Rs. 1.5 lakhs per annum on various investments.

How to Save TDS on FD?

When someone wants to save their money, FD is one of the first things that comes to their mind. Ironically, sometimes while saving money by investing it in an FD, people end up paying tax. So, even though FDs are a popular saving option, they are not tax-efficient. 

 

The interest income from an FD is added to our income. A TDS of 10% is applicable for income which exceeds Rs. 40,000 (Rs. 50,000 for senior citizens). However, there are still certain ways which can allow individuals to save or reduce TDS on FD. 

Submit Form 15G/15H

You can submit form 15G/15H to your bank if your taxable income doesn’t exceed the limit of Rs. 2.5 lakhs. If you are an individual below 60 years of age, you need to submit Form 15G. However, if you are a senior citizen, you need to submit Form 15H instead. 

 

This form should be submitted before the beginning of the new financial year to make sure that the bank does not deduct any TDS. However, if you want, you can also submit the form before the new quarter begins.

Claim ITR Refund

If for some reason you fail to submit Form 15G/15H, you need not worry. You can still file the Income Tax Return (ITR) and get the money that was deducted as TDS refunded in your bank account provided that your income doesn’t exceed the taxable limit.

Time your FD

When it comes to saving tax, a little planning can go a long way. The TDS which is applicable gets calculated in March. So, you should book your FDs in such a way that it prevents you from earning an interest income of Rs. 40,000 in a financial year.

 

You can book a one-year FD strategically in the midst of a year, such as in the month of September. This way, the interest income will be split into two, and you might be able to avoid TDS.

Open FDs in the name of your family members

A lot of people open FDs not in their own names but of their elderly parents and stay-at-home parents who do not fall under the tax bracket. Since the TDS is imposed on an individual basis, you can divide your total investable amount amongst your family members to lower your tax burden.

Open FDs in different banks

One of the easiest things you can do to reduce your tax burden is to open FDs in multiple bank accounts. You can book several FDs in different banks rather than booking a single FD in a single bank. Doing this will ensure that your interest income won’t exceed Rs. 40,000 in a financial year and as a result, TDS won’t be deducted by your bank.

Book FDs with shorter tenures

When you decide to go for FDs with a shorter timeline, the total interest earned on the FD is relatively less than in the case of a long-term FD. Therefore, if your requirements can be met by a shorter-term FD, then you can go ahead and book it to keep your interest below the threshold limit.

Conclusion

Due to rising expenses, ranging from housing and education to healthcare and daily necessities, saving every penny is crucial. This is well understood by individuals with salaried income. This is why one must always look for ways to reduce TDS on salary and FD. The hard earned money which can be saved on TDS can be used for other important expenses. 

 

With just simple planning to save or reduce TDS, you can save a good portion of your salary and use the money saved for securing your future. Make sure that you file your ITR in a timely manner to claim TDS refund. If you need Registrationwala’s assistance, we’re just one call away. 

Frequently Asked Questions (FAQs)

Q1. What is TDS meaning?

A. Tax Deducted at Source, or TDS, is a tax collection mechanism wherein the tax is deducted at the source of income.

 

Q2. What is TDS return filing due date?

A. The TDS return filing due date is 31st of July for the first quarter, 31st of October for the second quarter, 31st of January for the third quarter, and 31st of May for the fourth quarter of a financial year.

 

Q3. What is the difference between TDS and TCS?

A. TDS full form is Tax Deducted at Source. TCS full form is Tax Collected by Source. TDS refers to the tax which gets deducted at the source itself by any individual or company making a payment if the amount exceeds a prescribed threshold. However, in the case of TCS, the tax is collected by the seller from the buyer, at the time of the sale

 

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