We understand due to the volatile market and economic conditions, you as an investor must be hesitant to invest your hard-earned money in shares or mutual funds. But, is FD the best investment plan? Fixed deposits are a risk-free form of investment, but they are not tax-free.

Banks deduct Tax Deducted at Source (TDS) on your earning from an FD interests exceed Rs. 10,000 in the current financial year. As FD interest is a form of income, so income is subjected to taxation. The banks calculate all the interest you have earned at the end of the financial year.

If the amount is within Rs. 10,000 then no tax will be charged. But, if the bank decides to increase the interest rate of your fixed deposit to 11 percent, then your interest income will increase from INR 10,000 to INR 11,000. As this new amount exceeds the limit, the new income amount will result in TDS deductions. But, there are various ways through which you can avoid the tax deduction.