Tax Savings Fixed Deposit: Features and Eligibility

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By Hiral Vakil on March 6, 2019

Tax savings Fixed Deposit a.k.a Tax savings 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.

Tax Savings & Deductions

Features of Tax Savings Fixed Deposit: 

  • The Minimum Amount you can invest is Rs. 100 & thereafter in Multiples of Rs. 100.
  • The maximum investment in any financial year is Rs. 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 postmaturity in the event of your death.

Who can invest in Tax Savings Fixed Deposit?

All Resident individuals and Hindu Undivided Families are eligible to invest under Tax Savings 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.

Ask an Expert (Income Tax) View Plan

FAQs: 

1. 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.

2. Can I withdraw from FD before maturity? 

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