Fixed deposits are considered the safest investment option. That is also why our grandparents and parents loved this investment option over shares and securities. The mix of high returns with the lowest risk is the reason, FDs are a favourite. Moreover, FDs have a type called Tax Saving FDs, investing in which gives tax benefits.
What are Tax Saving FD?
Tax-saving FDs are Fixed Deposits that offer tax benefits along with earning interest income. A tax deduction of up to INR 1,50,000 can be claimed under section 80C for the amount invested in such FDs. These FDs come with a lock-in period of 5 years.
The taxpayer can invest a lump-sum amount in this type of FD and can earn interest income which is higher compared to a savings bank account. However, the taxpayer should also keep in mind the financial goals they are trying to achieve, as the money gets blocked for 5 years and is not available for any emergency use.
Who can invest in Tax Saving Fixed Deposit?
All Resident individuals and Hindu Undivided Families are eligible to invest under Tax Saving Term deposits. Term deposits shall be of the following types, namely:-
- Single holder type deposits – The single holder type deposit receipt shall be issued to an individual for himself or in the capacity of the Karta of the Hindu undivided family.
- Joint holder type deposits – The joint holder type deposit receipt may be issued jointly to two adults or jointly to an adult and a minor, and payable to either of the holders or to the survivor. In the case of a joint holder type deposit, the deduction from income under section 80C of the Act shall be available only to the first holder of the deposit.
No nomination shall be made in respect of a term deposit applied for and held by or on behalf of a minor.
Features of Tax Saving Fixed Deposit
- The Minimum Amount you can invest is INR 100 & thereafter in Multiples of INR 100
- The maximum tax deduction in any financial year is INR 1,50,000
- The maturity period of a term deposit is 5 years starting from the date of receipt
- The term deposit shall not be pledged to secure a loan or as security to any other asset
- Withdrawal is not allowed before maturity from such FDs.
- The interest rate on FD is between 7-9%
- It is upon the taxpayer to choose the interest payout frequency as monthly, quarterly or reinvestment in principal.
- Interest on these term deposits shall be liable to tax at slab rate under the head Income from Other Sources.
- TDS under section 194A at 10% shall also be deducted if the interest amount exceeds INR 40,000.
- In the case of resident senior citizens (aged 60 or above) can further claim interest deduction under section 80TTB up to INR 50,000.
- A nomination facility is available. You can nominate/authorize someone to withdraw your deposit before or post-maturity in the event of your death
Yes. Interest earned on any Fixed Deposit is taxable under the head Income From Other Sources.
No. As per Government notification, no premature withdrawal is allowed for the Tax-Saving FD
Yes, the lock-in period is a minimum of 5 years.
There is no such limit on the maximum amount to be deposited in FD. However, the deduction can be claimed only up to INR 1,50,000.