Which saving scheme is best to invest in for a regular monthly income in India with no/minimum TDS?

best saving scheme

Any income earned legitimately in India is taxable above a specific threshold. It also includes the interest on your investment. The income tax rules stipulate that the financial institution accepting the investment is liable to deduct income tax at the source (TDS) and remit it to the government authorities. However, there are specific exemptions available to investors. Let us see the minimum threshold for TDS on regular monthly income from savings, and which is the best saving scheme to invest in for a steady monthly income in India with no/minimum TDS.

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The Threshold Limit for TDS

The IT Act 1961 mandates that the bank or the financial institution must deduct income tax at the source (TDS) from the interest payable to the investor (depositor) if the annual interest payable is Rs 40,000 or more. For a senior citizen (above 60 years), the threshold limit is Rs 50,000.

Section 194A of the IT Act deals with TDS on interest.

Is the threshold limit sufficient?

You can argue that the threshold is minimal, especially when considering that the investor might be relying on the interest amount alone for sustenance. For example, the investor could have deposited their full retirement benefits into fixed deposits. Under such circumstances, they rely on this interest amount for survival. So, the government has provided concessions to the public by allowing them to submit Form 15H/15G to the banks/financial institutions.

Once the banks receive this form and link it to the respective deposits, they cannot deduct TDS from the interest payable to the depositor. The onus of paying tax on the interest income shifts from the banks to the individual depositor, who will have to pay tax and file their income tax returns as tax usual. Under such circumstances, the standard income rules are applicable.

The Best Savings Instrument with minimum TDS

Let us now see which savings instrument generates a regular monthly income with minimum or no TDS.

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  • A

    The Post Office Monthly Saving Scheme

    The Post Office Monthly Savings Scheme offers better interest rates than all banks in India. Presently, the interest rate on a Post Office Monthly Saving Scheme account is 6.60%. Moreover, since the maximum investment in this scheme is restricted to Rs 4.50 lakhs per individual, the annual interest payable is less than Rs 30,000 per individual. Therefore, there is no question of any TDS.

  • B

    The Post Office Senior Citizen Savings Scheme Account

    1. Senior citizens above 60 can invest in the Post Office Senior Citizen Savings Scheme for a maximum of Rs 15 lakhs.
    2. Retired civilian employees between 55 and 60 can also invest in this deposit scheme, subject to specific conditions.
    3. Retired Defense employees above 50 years can invest their retirement benefits in this scheme subject to specific conditions.

    The rate of interest is 7.4% and is payable quarterly. So, a deposit of Rs 15 lakhs can earn a maximum interest of Rs 1.11 lakhs per annum. This interest amount is above the threshold limit stipulated by the Income Tax department. Therefore, the depositor can submit Form 15G/15H as applicable. Under such circumstances, the post office is not liable to deduct TDS.
    A senior citizen depositor can ask what would be the maximum investment they can make in this scheme if they do not want to submit Form 15H. The answer is Rs 6.75 lakhs. However, if the depositor is below 60 years of age, the maximum investment should be Rs 5.45 lakhs.

     

  • C

    Bank Monthly Interest Saving Scheme

    Bank FDs are similar to Post Office monthly saving scheme deposits, except there are no ceilings on the maximum investment amount. However, the interest rate on bank deposits is less than that of the Post Office. For example, IDFC Bank offers the highest interest rate of 6.25% for the general public and 6.75% for senior citizens. Other banks offer interest rates of 5.50% to 6%. Senior citizens get 0.50% more than the general public.
    So, the minimum investment that can earn a regular monthly income from bank deposits without TDS is as follows.
    IDFC Bank – Rs 6.43 lakhs for a regular citizen and Rs 5.95 lakhs for a senior citizen
    However, you can invest more provided you submit For 15G/15H to the bank.

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