With Tax Saving Fixed Deposit, you can claim the amount invested up to Rs. 1.50 Lakhs as a deduction from your income. So, to calculate your taxable income, you reduce the amount of your Tax Saving FDs from your total gross income; and, that is how you get your taxable income. The tax benefit or deduction which you get for your tax saving FDs is under Section 80C of the Income Tax Act, 1961.
How Tax Saving FDs are different from Regular FDs?
The only additional benefit of a Tax Saving FD over a regular FD is that the original amount you invest in a Tax Saving FD is exempted from taxes. Also, you can claim a tax deduction under Section 80C of the Indian Income Tax Act, 1961 while filing income tax returns. However, the interest income that is generated from Tax Saving FDs is subject to the same tax rules as any other regular FD.
Recommended Read : Calculation of Income Tax on FD and RD Interest !!!
Also Read : How to save Money through SIP?
What are schemes for fixed deposits under Section 80C?
Fixed Deposits schemed under Section 80C of the Income Tax Act, 1961 are named as Tax Saving Fixed Deposits. You get tax deductions up to Rs.1.50 Lakhs per year under Section 80C of the Income Tax Act, irrespective of your tax bracket. Also, Section 80C can be used to avail deductions on a number of investments or expenditures such as PPF, NSC, child education fees, infrastructure bonds, pension funds, tax saver fixed deposits, senior citizen savings scheme (SCSS), unit linked insurance plans (ULIP), life insurance premiums, home loan principal, etc. Most relevant is that Section 80C provides cumulative deductions up to Rs.1.50 lakhs per year from all investments in relevant instruments.
Features of Tax Saving FDs:
Major features of Tax Saving FDs are:
- Fixed maturity of 5 years.
- Minimum investment must be Rs.100. Further, investments can be made in multiples of Rs.100 only. This limit may vary from bank to bank.
- The maximum limit of investments Rs.1.50 Lakhs.
- Interest rate will be as per your bank or financial institution.
- Individuals including senior citizens and NRIs; and Hindu Unified Families (HUF) can open this account.
- In case of joint accounts, only the first holder will get tax deductions as per the section 80C of the Income Tax Act, 1961.
- Premature withdrawal is not allowed.
- You cannot avail loan against your tax saving fixed deposits.
- Your interest from FDs are taxable. TDS is charged at 10% pa, if you have given your PAN details to your bank, else TDS will be charged at 20% pa.
Recommended Read : Calculation of Income Tax Deduction on FD and RD Interest !!!
Benefits of investing in Tax Saving FDs:
Tax saving FDs come with lot of benefits. You can get more out of your investments through Tax Saving FDs. Though, there are a few limitations as well, such as you cannot withdraw premature and you can’t avail loan against it, etc. However, at the same time, there are many benefit from the same:
- The major benefit of investing in tax saving fixed deposit is that it helps you save income tax.
- Open throughout the year; unlike, tax free bonds issued by the government from time to time.
- You can start investing with as little as Rs.100 and add to your savings.
- Also, you can avail a tax benefit on amount invested up to Rs.1.50 Lakhs per year.
- You can take advantage of interest paid out on monthly or quarterly basis.
- Special rates are available for senior citizens, depending on bank.
- Secure investments for the medium term.
- Since, premature withdrawal is not available in case of tax saver fixed deposits, you can be sure of receiving assured returns, apart from saving tax.
- Also, nomination facility is available. You can nominate or authorize someone to withdraw your deposit before or post maturity in the event of your death.
- And, Tax saving fixed deposits may not earn you as high as some other tax saving investment avenues; such as tax saving mutual funds or insurance policies, these will ensure that you have a peace of mind while investing your hard-earned savings, and get assured pay-outs at regular intervals
Eligibility to open a Tax Saving FD?
- All resident individuals who have a pan card.
- Non–resident Indians (NRIs).
- Senior citizens above 60 years of age.