Tax-Saver FDs in India: Tax Deductions Through Section 80C Of Income Tax Act
Advantages And Disadvantages of ELSS Funds
12 April 2022
Section 35AD of the Income Tax Act: Eligibility, Specified Business & Deductions
12 April 2022Tax-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!
Features and Benefits of Tax-Saver FDs in India
Income tax-saver FDs have the following characteristics and advantages:
- You can opt for monthly, half-yearly, quarterly, or maturity payouts
- The minimum deposit amount is Rs. 1,000 (or in multiples of 100)
- You can extend the lock-in period of 5 years as per your convenience
- A tax-saver FD’s maximum amount of deposit is Rs. 1,50,000 during a fiscal year (or in multiples of 100)
- Interest rates on these deposits are higher compared to that of savings accounts.
- Interest income from such deposits will be taxable.
- You can opt for a joint account facility, but only a primary account holder under the joint account will qualify for tax-saver FD benefits.
- A senior citizen can get a hike in interest rate by up to 0.50%.
- In case your financier defaults, there’s a provision of insurance worth Rs. 5,00,000 against fixed deposits.
- Once the 5-year lock-in period gets over, you can avail premature withdrawal.
Eligibility for Tax-Saver FDs
The following people are eligible to invest in fixed deposits:
- Hindu Undivided Families
- Resident individuals
They can open fixed deposits with a post office, a bank, or even with an NBFC.
Tax-saver Fixed Deposits vs ELSS Funds
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 |
Fixed Deposit vs PPF
A PPF is different from a tax-saving fixed deposit in the following ways:
| Factors | PPF | Fixed Deposits |
| Tax on Returns | No | Yes |
| Overdraft/Loan | Yes | No |
| 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) |
Tax-Saver FD Interest Rates
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) |
| IDFC Bank | 5.75% | 5.25% |
| Punjab National Bank | 5.95% | 5.25% |
| HDFC Bank | 5.80% | 5.30% |
| Kotak Mahindra Bank | 5.80% | 5.30% |
| State Bank of India | 5.90% | 5.40% |
*These interest rates, as of November 2021, are subject to change at the bank’s discretion.
2 Things to Consider While Investing in Indian Tax-saver FDs
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!
- Nomination facility
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.
- Taxability of returns
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 mail by the end of each quarter in a fiscal year.
Final Word
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.
FAQs on Tax-Saver FDs in India
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.
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