Tax-saver FDs are fixed deposits that offer tax deductions through Section 80C of the Income Tax Act. Such FDs have 5 years as the lock-in period. A taxpayer can claim Rs. 1,50,000 (maximum) per fiscal year as a deduction through investments in fixed deposits. Read on to get the details!
Income tax-saver FDs have the following characteristics and advantages:
The following people are eligible to invest in fixed deposits:
They can open fixed deposits with a post office, a bank, or even with an NBFC.
Here’s how tax-saver FDs in India differ from ELSS funds:
|Factors||ELSS Fund||Fixed Deposit|
|Returns||Unpredictable and not guaranteed||Predictable and guaranteed|
|Risks Involved||High risk||No or little risk|
|Mechanism||A mutual fund scheme in which the yields are subject to economic fluctuations||It involves depositing a lump sum amount for a particular duration at a constant interest rate.|
|Loan Facility||No loan facility||Loan applicable against the deposited amount|
|Lock-in Period||3 years||5 years|
A PPF is different from a tax-saving fixed deposit in the following ways:
|Tax on Returns||No||Yes|
|Lock-in Period||15 years||5 years|
|Risk Involved||Very low||Very low|
|Returns||7.1%||5.00% – 6.75% (Can be more or less)|
Go through the following chart to learn about the best tax-saver FD rates:
|Bank||Rates of Interest (Senior Citizens)||Rates of Interest (Regular Individuals)|
|Punjab National Bank||5.95%||5.25%|
|Kotak Mahindra Bank||5.80%||5.30%|
|State Bank of India||5.90%||5.40%|
Given the tax-saver FD advantages, it may be an attractive opportunity for risk-averse individuals to avail it. However, keep the following 2 facts in mind while investing!
A nomination facility is applicable to FDs, but it’s not available in case the fixed deposit is held on a minor’s behalf or availed for a minor.
Interest income from fixed deposits will be taxable as per an individual’s income tax slab. When the interest reinvested or payable on your fixed deposit goes above Rs. 40,000 (or Rs. 50,000 for senior citizens) during a fiscal year, a TDS deduction will be applicable. A depositor will receive the TDS certificate through the mail by the end of each quarter in a fiscal year.
Tax-saver FDs in India are effective investment tools for those individuals who want to avoid risk. If you wish to get stable returns and tax deductions, then these fixed deposits are for you. Many pensioners, having a huge retirement fund, invest in FDs such that the regular interest payments from their accounts finance their day-to-day expenses. FDs can also be useful at the time of emergencies.
Ans: To open a tax-saver FD account, you will need passport-sized photographs, proof of age (for senior citizens), address proof, and identity proof. You can use documents such as passport, voter ID card, ration card, Aadhaar card and PAN card for this purpose.
Ans: Since tax-saver fixed deposits have a five-year lock-in period, premature withdrawal is not applicable. However, once the lock-in period gets over, you can opt for premature withdrawal. The eligibility requirements for premature withdrawal vary from one bank to another.
Ans: Your bank will transfer the FD maturity amount, that is, the interest and the principal amount, to the linked savings account with your bank. If you haven’t opened a savings account with the concerned bank, you can instruct the maturity payment procedure to your bank.
Ans: First, a senior citizen needs to furnish his/her age proof to open a tax-saver fixed deposit account. Based on his/her age proof, the concerned bank will decide the rate of interest and other related benefits.
Ans: A processing fee is generally not chargeable to avail a loan against a fixed deposit. However, the criteria may vary from bank to bank. A maximum of 60% to 75% of your FD amount can be available as a loan. Such loans may attract a higher interest rate compared to the FD rates.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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