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Monday, June 21, 2021

What are Tax saver Fixed Deposits?

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Fixed deposit is an attractive investment tool in India. One of the prevalent types of FD is Tax saver fixed deposit (FD). By investing in this, you can avail tax deduction under section 80C of the Income Tax Act, 1961 of Government of India. You can claim a maximum deduction of Rs.1. 5 lakh by investing your funds in tax saver fixed deposits. The minimum tenure for a Tax Saving Scheme is five years.

Some features of Tax saver FD

There are few points to note before making an investment in Tax- Saving FD:

  • Only Individuals and Hindu United Family (HUF) can invest in tax-saving fixed deposit (FD) scheme. 
  • Tax saving fixed deposits, like the regular FDs, are safe investments.
  • There is a low risk of any default or reduction in interest rate as it is not market-linked.
  • A minor is also eligible to invest in this type of FD jointly with an adult.
  • The minimum amount with which you can open an account of tax saving FD varies from bank to bank. The ceiling for tax saving under section 80C is Rs 1.5 lakh in one financial year. 
  • Tax saving FDs has a lock-in period of 5 years. 
  • Loan against these FDs and its premature withdrawals and are permitted.
  • You can invest your funds in these FDs through banks or NBFCs. In the case of banks, you can select any public or private sector bank but not any co-operative and rural bank.
  • You can have these FDs in ‘Single’ or ‘Joint’ names as holders. If FD is in joint names, the tax benefit is available to the first holder only.
  • The interest you earn in tax saving FD is taxable as per your tax bracket, and hence, TDS is applicable. 
  • The interest you earn on your investment is payable on a monthly or quarterly basis. If you do not withdraw the interest amount, it can go as an add-on in the principal amount.
  • You can save TDS on fixed deposit (fd) by tax saving FD by submitting Form 15G to the bank. 
  • An individual has to pay TDS if the total interest amount in a financial year exceeds Rs 40,000. 
  • Senior citizens can claim a deduction up to Rs 50,000 on the interest earned from Tax saving FD under section 80TTB. 
  • Nomination facility is available for tax saving FDs. But nomination facility is not available if the FD is on the name of a minor.
  • Senior citizens enjoy slightly higher FD interest rates as compared to a non-senior citizen). 
  • FD has a higher interest-earning potential than a savings account
  • FD allows only a one-time lump sum deposit
  • The rate of interest applicable to such tax-saving FDs currently ranges from 6.5%-8.5% across all categories of investors

The interest rates for tax saving FD vary from one to the other bank or NBFC. It would be best if you opted for such an FD keeping in view the safety, returns on investment and the tenure. 

Also Read: Types of Loans a Business Owner can Tap into to Raise Fund

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