Did you know that tax-saving FDs (fixed deposit) can help you save up to Rs.46,800 on taxes? Considered as a special FD scheme, tax-saving FD investments are eligible for income tax deduction under Section 80C of the Income Tax Act. These FDs can fetch you up to 8.10% interest rate or more depending on the tenure. The maximum deposit amount is capped at Rs.1.5 lakh. Let’s understand how these FDs work, their features and benefits.
Tax saving fixed deposit is a type of deposit scheme that allows you to claim tax deduction benefits up to Rs.1.5 lakh under 80C of the I-T Act on your FD investment. The tenure ranges from 5 to 10 years. However, tax-saving fixed deposits come with a lock-in period of 5 years, which means there’s no premature withdrawal allowed.
Here’s a simplified summary of how a tax saving fd work :
Here is a list of best performing tax saving fd interest rates
|Name of the Bank||Interest Rate (Regular Citizen)||Interest Rate (Senior Citizen)|
|State Bank of India||6.5%||7.5%|
|Kotak Mahindra Bank||6.20%||6.70%|
|Punjab National Bank||6.50%||7.00%|
|Bank of Baroda||6.50%||7.15%|
Rate of Interest (P.a)
Time Period (Years)
You can calculate your FD Interest Rate via simple interest method and compound interest method. The simple interest method is mentioned below:
Simple Interest = (P * R * T)/100
Alternatively, you can calculate your fixed deposit interest rate via compound interest method. The compound interest calculations is as follows:
A = P (1+r/n) ^ (n * t)
You may need to meet the following eligibility criteria to open tax-saving FD
Here are few ways you can follow to avoid tax on fixed deposits :
If you submit Form 15G (for individuals) or 15H (for senior citizens) declaring that you have no taxable income, the bank will not deduct any TDS on the interest earned.
You can avoid tax deductions by timing your FD in such a way that the interest earned during any financial year is not more than ₹ 10,000.
Another way to avoid tax deduction is by opening one FD under your personal bank account and another under a HUF account. This way, both accounts will be treated separately.
Tax saving FDs can be a useful tool for individuals to save on their tax liability while also earning a fixed rate of interest on their investments. These FDs come with a lock-in period of 5 years and offer tax benefits under Section 80C of the Income Tax Act. However, it is important to note that the interest earned on these FDs is taxable, and one must factor in this aspect while making an investment decision.
Looking for other-tax saving instruments? You can consider investing in ELSS Tax Saver Nifty 50 Index Fund with Navi Mutual Fund and claim tax deduction benefits of up to Rs.1.5 lakh today. Download the Navi app, explore funds and start investing.
Tax Saving FDs are suitable for individuals who are looking to save taxes and earn a fixed rate of return on their investment.
The Tax Saving FD has a maximum investment limit of Rs. 1.5 lakh per financial year.
Investment in Tax Saving FD is open to both individuals and Hindu Undivided Families (HUFs). One can invest in Tax Saving FD through any public or private bank, except cooperative and rural banks.
Premature withdrawal is not allowed in Tax Saving FD as these deposits have a 5-year lock-in period.
Many taxpayers invest in a tax-saving FD as FD returns are fixed and not linked to market fluctuations.
When investing in a Tax Saving Fixed Deposit (FD), the current interest rate level is fixed for the entire lock-in period of 5 years. This means that even if the bank increases the interest rate for long-term FD tenure in the future, your Tax Saving FD will continue to earn the interest rate that was agreed upon at the time of investment. Therefore, if you invest in a Tax Saving FD at a lower interest rate of around 6.5%, you may miss out on potential higher returns if the bank increases the interest rate in the future.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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