Below are the ways to avoid TDS on FD
By submitting Form 15G/15H: In order to avoid Tax Deducted at Source (TDS) on interest income from FD, depositors can submit either Form 15G or Form 15H. Using the forms, depositors declare that their income in a financial year is below the basic exemption limit. Form 15G is used by depositors below the age of 60 while Form 15H is used by depositors aged 60 years and above.
Distributing FD: If your total income in a financial year crosses the basic exemption limit, you cannot use either Form 15H or Form 15G. Under this circumstance, depositors can avoid TDS by spreading their FDs across different banks such that the interest income from one bank does not exceed Rs 40, 000 in a financial year (Rs 50, 000 for senior citizens). However, this does not imply that you do not pay tax on interest income. Interest income is added to the total income of the depositor and taxed as per marginal rates of tax.
Timing FD: You can avoid TDS by timing your FD in a manner such that interest income does not exceed Rs 40, 000 in a financial year (Rs 50, 000 for senior citizens).
Splitting FD: Depositors with HUF (Hindu Undivided Family) identity can open 2 separate FD accounts. This may help in avoiding TDS as interest earnings will be split.