Money-Wise: Planning to save taxes on interests earned? Here's how you can in India

A common concern of all those investing their hard-earned money to earn some good interest amount is the taxes that will be levied on them.

First, let's understand how taxes are charged on the interest we earn over the investments made in different instruments.

According to the tax system in India, the Long Term Capital Gain (LTCG) tax of 12.5% is charged when the asset is sold after 24 months and the profit earned is more than Rs. 1.25 lakh in a fiscal year.

Meanwhile, the Short Term Capital Gain (STCG) of 20% is charged when the asset is sold in less than 12 months.

In the case of fixed deposits, the tax on the interest earned is calculated on the basis of the income tax slab.

Those who fall under the 30% tax slab, will pay 30% income tax and 4% cess on the interest earned.

If the interest earned in the entire financial year is more than Rs 40,000 in AY 2024-24, a TDS of 10 per cent will be calculated on your Fixed Deposit (FD). The TDS on interest earned is exempted if the total interest income from FDs is less than Rs 40,000 in a year.

For those whose overall income is less than Rs 2.5 lakh in a year, no tax is charged on FD.

In the case of individuals, the exemption limit for TDS on FDs is Rs 40,000 and in the case of senior citizens, it is Rs 50,000.

Here's how you can save taxes on interest incomes

For saving tax on Long-Term Capital Gain, the investor can buy a new residential house property and enjoy exemption on capital tax under Section 54 and Section 54F.

Another way is to purchase bonds issued by NHAI and RECL using the entire long-term capital gains to save tax under Section 54EC.

A third way out is opening a capital gain account scheme through which the investor can get tax exemptions without buying a residential property.

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The withdrawal of funds from this account is permitted only for purchasing houses and plots. In case, the funds are withdrawn and not utilised for the same purpose within three years of withdrawal, the LTCG tax is levied on the entire amount.

In order to save TDS on Fixed Deposits if the income is below the basic exemption limit, the investor needs to submit Form 15G and 15H to the bank at the start of the financial year.

Unlike other interests earned which are taxed, the interests earned in Savings Account up to Rs 10,000 every year are exempted under Section 80TTA deduction of the Income Tax Act.

This exemption applies to all individuals and HUFs (who are above 60 years) apart from senior citizens.

In India, an easy and safe way to save tax on interest gains is by investing money in tax-free interest schemes which are exempted under Section 80c of the Income Tax Act.

These tax-free investment schemes are:

• National Pension Scheme (NPS)
• Unit Linked Insurance Plan (ULIP)
• Tax-Saver Fixed Deposit (FD) Scheme
• Sukanya Samriddhi Yojana (SSY)
• National Savings Certificate (NSC)
• Senior Citizens Savings Scheme (SCSS)
• Public Provident Fund (PPF)