Save tax on fixed deposit interest

All interest that one makes on savings accounts or fixed deposit is taxable in your hands . It is considered as part of other income in the tax returns.
Any interest over 10,000 Rs is also tax deductible at source.

Now lot of us keeps money in savings accounts and also invest in fixed deposits.

On savings account one earns around 3.5 % and post tax is 2.31% or if invested in fixed deposit @6.5% post tax is 4.29%

Now my advice has been to invest in liquid funds vs keeping money in the bank account . The liquid funds will give around 6% pre tax returns but is still taxable in your tax rate .

This tax needs to be paid because these are all debt products and hence tax is applicable even post three years.

There is one product which is an equity product which enables this to be tax free in one years time.

This is called as arbitrage funds . These have been giving around 5-5.5% returns which when invested for more than one year will be tax free... Which means more than the 4.3% returns from fixed deposit.

This is an interesting product and can be used to get the 1% additional benefit as compared to fixed deposit or more than investing in the liquid funds for emergency fund.

This is a good way to get better returns. Investing in it is good opportunity.

Use it if you can wait for more than one year .. that's simplefinancialsense