Tax Saving Fixed Deposits

Tax Saving Fixed Deposits

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Find out what a Tax Saving FD is, its unique features and why should you invest in it.

Key Takeaways

  • A Tax-Saving Fixed Deposit is a special type of FD offered by the Indian Government.
  • You can avail of tax deductions under section 80C of the Indian Income Tax Act, 1961 by investing in this FD.
  • The maximum amount you can invest is INR 1.5 lakhs per annum.
  • Tax Saving FDs come with a lock-in period of 5 years.
  • You can earn interest rates of 5.5% to 7.5% on Tax-Savings FDs.

Almost every bank in India offers Fixed Deposits wherein an investor can invest any big or small amount for a fixed period and get a fixed rate of return out of it. The interest rate ranges between 3% and 7.75% per annum, and you have to pay taxes on the returns accrued from your regular Fixed Deposits. However, the Government of India also offers Tax-Saving Fixed Deposits with significantly higher interest rates. Let us find out more about Tax-Savings FDs in this article.

What is a Tax-Saving Fixed Deposit?

Tax-Saving Fixed Deposit is a type of Fixed Deposit under which you can avail of tax deductions under Section 80C of the Indian Income Tax Act, 1961. You can claim the Fixed Deposit income tax exemption on investments of up to INR 1.5 Lakhs. Unlike a regular FD, which comes with varying lock-in tenures, a Tax-Saving Fixed Deposit comes with a lock-in period of five years. You can also earn higher interest rates ranging from 5.5% to 7.75% on these deposits.

While it is a tax-saving deposit, the interest earned on it is subject to Tax Deducted at Source. You can, however, avoid the TDS by submitting the relevant 15G or 15H Form.

Features of Tax-Saving Fixed Deposits

The following are some of the principal features of Tax-Saving FDs

  • The minimum amount you can deposit in a Tax-Saving FD is INR 1,000, whereas the maximum amount is INR 150,000 per annum.
  • The FD comes with a lock-in period of five years.
  • You can assign a nominee to this investment.
  • You can avail of monthly or quarterly payout on these FDs.
  • You cannot withdraw the FD prematurely or use the FDs to apply for loans.

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Tax-Saving FD Eligibility Criteria:

  • All Individuals and HUFs are eligible to invest in the Tax-Saving Fixed Deposit scheme.
  • You can invest in the FD individually or jointly with another adult. However, only the first holder can avail of the tax benefit.
  • Minors can also invest in this FD, but it should be a joint FD account with an adult.

Documents Required

You only need to provide a copy of your ID and address proof documents to open a Tax-Saving Fixed Deposit. These include:

  • A copy of identity proof – PAN card, Aadhaar, Voter ID card, Driving license, Passport, Government ID card, Senior Citizen Card, etc.
  • A copy of address proof – Aadhaar, Voter ID card, Driving license, Passport, Utility bills, etc.

Reasons to Invest in Tax-Saving Fixed Deposits

The following are some reasons why you should open a Tax-Saving FD.

High returns

Tax-Savings FDs have a great interest-earning potential as compared to other instruments. The interest rate can be in the range of 5.5% and 7.75%.

Convenient

You can conveniently open this FD online with your bank or visit a post office to open it and make a one-time lump sum deposit. Additionally, you can flexibly invest anywhere from INR 1,000 to INR 1.5 Lakhs per annum.

Tax savings

The most attractive benefit of the Tax-Saving FD is that it comes under Section 80C instruments, on which you can avail of tax deductions of INR 1,50,000. If you have not invested in any other tax-saving instrument, you can consider this.

Risk-free

Tax-Saving Fixed Deposits are risk-free as the principal amount is protected. You get both the principal investment amount and the interest amount when the FD matures.

Conclusion

The 5 years Tax-Saving Deposit is an excellent investment option you should consider if you prefer to invest in safe investment instruments. With this investment, you can get tax savings benefits along with relatively high returns and a medium lock-in period. The fixed deposit tax exemption and high-interest rate make this instrument a risk-free and convenient investment option.

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*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.

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