Taxes can be likened to a necessary evil. Nobody likes to pay them but they are crucial for the growth and development of the nation. Hence people are constantly on the lookout for new ways to save taxes. If you are looking out for tax saving options, you have come to the right place! Tax Saving Fixed Deposits are a safe as well as an effective tax saving instrument. Before we get to the details of the tax benefits of Tax Saving Fixed Deposits, it is important to get a good understanding of it. So let’s begin with the basics.
What are Tax Saving Fixed Deposits?
As the name suggests, Tax Saving Fixed Deposits are fixed deposits that offer tax benefits to the depositor. With a Tax Saving Fixed Deposit, you get the triple benefits of safety, tax savings and attractive interest rates. You can invest a maximum of Rs 1.5 Lakh in a Tax Saving Fixed Deposit. However, the minimum amount of deposit varies from bank to bank. The lock-in period for Tax Saving Fixed Deposits ranges from 5 years to 10 years.
What are the Tax Benefits?
You can claim a deduction of up to Rs 150,000 with Tax Saving Fixed Deposit under the section 80C of the Income Tax Act,1961.
Important points to consider while investing in Tax Saving Fixed Deposits
- Tax Saving Fixed Deposit investments can only be made by individuals and HUFs (Hindu Undivided Families)
- These deposits have a minimum lock-in period of 5 years
- Premature withdrawals are not allowed
- You cannot take a loan against Tax Saving Fixed Deposits
- You can invest in Tax Saving Fixed Deposits only through public and private sector banks
- You can have a joint holder in tax saving fixed deposit. However, only the primary holder will be eligible for the tax benefit
- The interest earned will be liable for taxation as per the tax bracket of the investor. Hence TDS will be applicable to the interest earned. On the other hand, you also have the option to avoid TDS by submitting Form 15G (or Form 15H for senior citizens) to the respective bank
- Interest on Tax Saving Fixed Deposits is payable on a quarterly basis to reinvest it
- You can avail Nomination facility for Tax Saving Fixed Deposits
- Senior citizens are usually offered a higher interest rate for Tax Saving Fixed Deposits.
