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Tax Saving FD(Fixed Deposit): Features and Eligibility

Hiral Vakil

2019-03-06 12:42:51

Fixed Deposit

HUF

Section 80C

Tax saving FD (Fixed Deposit) a.k.a Tax saving Term Deposit are Fixed deposits with different maturity periods. To qualify for tax benefits, the lock-in period is 5 years.

The investment objective of term deposits is to provide tax benefits under section 80C of the Income tax Act. It aims at motivating individuals to save since it has the dual benefit of investment and tax saving.

Want to know what other tax deductions you can claim?

Read our article to understand the different types of tax deductions available to you and how to avail them.

Want to know what other tax deductions you can claim?

Read our article to understand the different types of tax deductions available to you and how to avail them.

The Minimum Amount you can invest is INR 100 & thereafter in Multiples of INR 100
The maximum investment 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
You are not allowed to withdraw money from your account until its maturity
The interest rate on FD is between 7-9%
When the interest is paid by the scheduled bank in a lump sum at the time of maturity, the term deposit receipt shall bear the yearly rate of interest on the term deposit
Interest on these term deposits shall be liable to tax
Nomination facility is available. You can nominate/authorize someone to withdraw your deposit before or post-maturity in the event of your death

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 deposit shall be of 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

No nomination shall be made in respect of a term deposit applied for and held by or on behalf of a minor. In the case of 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. The interest earned is subject to tax deduction at source as per tax laws.

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FAQs

Is interest on FD taxable?

Yes. Interest earned on any kind of Fixed Deposit is taxable. TDS will be deducted @ 10% in case the total interest income from such deposits exceeds Rs. 10,000 in a year.

Can I withdraw from FD before maturity?

No. As per Government notification, no premature withdrawal is allowed for the Tax-Saving FD

Is there a lock-in period for a tax saving FD?

Yes, the lock-in period is a minimum of 5 years.

Got Questions? Ask Away!

Ridhima_Sharma says:

09/02/2021

sushil_verma:

Can I save more than Rs 1.5 Lakh in Taxes through deductions?

Hey @sushil_verma

There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Maharshi_Shah1 says:

03/04/2021
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

For eg,
- Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
- Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
- Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.