Fixed deposits are one of the most secure investment options in the country. Most conservative investors with low-risk appetite prefer to invest in FD as it offers guaranteed returns. It may be noted that while FDs do not offer inflation-beating returns at the moment, it does offer risk-free returns.

If you are investing FDs, here are 5 rules you must know

1. A lot of people believe that they can avoid paying tax in the GD interest if they invest in the name of their non-working spouse or minor child. However, this is a total misconception. If you are investing FDs in the name of your minor child or non-working spouse, the interest earned will be counted as your income and it will be taxed as such.

2. Interest income from FDs is fully taxable. Add the interest income to your total income and you will get taxed at slab rates applicable to your total income. You have to mention the income earned from FD under ‘Income from Other Sources’ in your Income Tax Return. The tax on FD is deducted at source by the bank at the time they credit the interest to your account, and not when the FD matures. For example, if you have an FD for 3 years, the bank will deduct TDS at the end of each year.

3. It is to be noted that even if your bank has deducted TDS, you must report the interest income in your tax return. If you fall in the higher tax bracket of 20 per cent or 30 per cent, you are required to pay the extra tax if your bank has deducted TDS at the rate of 10 per cent.

4. Remember that even when no TDS is deducted on the FD interest income, include the interest income in your total income and pay tax on it. If you wait until the maturity of your FD when interest is actually received, your total interest income might push you up a tax slab and you may end up paying a higher tax.

5. Also not that investing in two branches of the same bank will not help you save TDS on FD as now banks aggregate interest income on all the FDs across branches of the same bank to check if the interest income for the year is more than Rs 10,000 or not.

Worth mentioning here is that if you do not declare the interest income in your income tax return, it may show mismatch in your 26AS statement also known as the tax credit statement and the return filed by you which might warrant a notice from the Income Tax Department.