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
FAQs
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.
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.
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,
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.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
Hey @shindeonkar95
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Hello,
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Hello @Veejayy,
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.