'100% legal': Hyderabad advisor reveals tax hack to pay zero on FD interest. Here how it works

A Hyderabad-based wealth advisor has laid out a little-known, completely legal strategy to slash tax on fixed deposit (FD) interest to zero—by leveraging a tax loophole involving parents.

Chakravarthy V, a financial advisor from Hyderabad, detailed on LinkedIn how investors can legally avoid paying tax on FD interest by shifting the income to family members in lower tax brackets.

The method hinges on gifting money to parents, especially senior citizens, who then open FDs in their own names. “If your parents’ total income is below ₹3 lakh (or ₹5 lakh for seniors), they owe zero tax,” Chakravarthy wrote. Even under the new tax regime, they can earn up to ₹7 lakh—or ₹12 lakh with rebates—without paying a rupee in taxes.

The strategy is reinforced by Section 56(2)(x) of the Income Tax Act, which states that gifts to parents are fully tax-free, regardless of the amount. There’s no GST or gift tax involved. “The interest is taxed in your parents’ hands, not yours,” Chakravarthy explained. This shift is especially useful when parents have little or no other income.

Further, by filing Form 15H, eligible parents can also avoid Tax Deducted at Source (TDS) on the FD interest.

And the kicker? Parents can gift the interest income back to their children, tax-free—provided the money first enters their account. “If you route the interest directly into your bank account, it becomes your income and gets taxed,” Chakravarthy warned.

The loophole doesn’t extend to spouses or minor children. Any income earned from gifts to them gets “clubbed” back into the original giver’s taxable income.

“This strategy is 100% legal and fully backed by the Income Tax Act,” he emphasized, branding it a smart way to reduce a family’s overall tax burden.