All you need to know about tax saving FD

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A fixed deposit is an investment instrument provided by both Banks and Non-Banking Financial Institutions to utilise idle money lying in your regular bank accounts and get guaranteed higher returns over a fixed period of time. Opening a fixed deposit account is as easy as opening a savings account but with higher returns than a savings account. While FD is one of the safest and accessible means of investment for a longer tenure, one cannot get tax benefits on these investments.

Well, if you want to invest in a tax-saving instrument and also get guaranteed returns then tax saving FD are the most viable options you must look for!

What is Tax Saving FD?

A tax saving FD is a type of fixed deposit where investors can deposit money in their FD accounts for a tenure of 5 years and get higher returns than regular savings account along with tax exemptions on your investments as well.

  • Under Sec 80 C of the Income Tax Act, you can get tax exemptions upto Rs. 1.5 Lakhs on the principal amount invested in a fixed deposit.
  • The Interest earned on these investments is, however, taxable as per your Income Tax Slab Rate. As per the Income Tax rules, Banks are required to cut TDS if the Interest income exceeds Rs. 10,000.

Can you save taxes on Interest earned on Tax Saving FD?

Yes, investors can submit Form 15 G to the bank to save TDS on their Interest Income. 15 G is the declaration form informing the bank that the Interest Income does not exceed Rs. 10,000. Senior Citizens are required to submit Form 15 H for the same. Also, Senior citizens can claim tax exemptions upto Rs 50,000 on the Interest earned from tax-saving fixed deposits as per the section 80TTB. To ensure that Interest earned on Fixed Deposits does not exceed Rs. 10,000, one can invest in smaller and multiple FD.

What are other features of Tax Saving FD?

  • A Tax-saving FD can be opened in Single or Joint mode of holding. However, one must remember that only the first holder will get tax benefits on the investment.
  • Only Individuals and Hindu Undivided Family can open a tax-saving FD. Corporate and business entities are not permitted to invest in these Fixed Deposits.
  • The lock-in period of Tax Saving FD is 5 years, and one cannot withdraw funds from these FD prematurely.
  • Unlike regular Fixed Deposits, investors cannot take a loan against FD in Tax Saving FD.
  • Also, tax-saving FD can be opened in public or private banks as well as the Post Office. Post Office FD also allows transfer FD from one Post office to another. The tax-saving FD is, however, not available with rural or co-operative banks.
  • Like a regular FD, you need to invest a minimum of Rs. 500 in your FD account, however, this amount may vary from bank to bank. Thus, you must check with your bank before investing in a tax-saving FD.
  • A tax-saving FD also provides the nomination facility to the investors. Accordingly, investors can name a nominee for their fixed deposit account.
  • The rate of Interest on a tax-saving FD may be higher than a normal FD. These rates may further be higher for Senior Citizens Fixed Deposits for 5 years.

Conclusion: A tax-saving FD is this the ideal choice for guaranteed returns and availing tax benefits as well. The only cache is that it does not permit premature withdrawal as well as Loan facility against the investments.

Read more: What Should You Know Before Investing InBti Stocks?

Summary: All you need to know about tax saving FD 

A tax saving FD is a type of fixed deposit where investors can deposit money in their FD accounts for a tenure of 5 years and get higher returns than regular savings account along with tax exemptions on your investments as well.

  • Under Sec 80 C of the Income Tax Act, you can get tax exemptions upto Rs. 1.5 Lakhs on the principal amount invested in a fixed deposit.
  • The Interest earned on these investments is, however, taxable as per your Income Tax Slab Rate. As per the Income Tax rules, Banks are required to cut TDS if the Interest income exceeds Rs. 10,000.
  • A Tax-saving FD can be opened in Single or Joint mode of holding. However, one must remember that only the first holder will get tax benefits on the investment.
  • Only Individuals and Hindu Undivided Family can open a tax-saving FD.
  • The lock-in period of Tax Saving FD is 5 years, and one cannot withdraw funds from these FD prematurely.
  • Investors cannot take a loan against FD in Tax Saving FD.
  • Also, tax-saving FD can be opened in public or private banks as well as the Post Office.
  • A tax-saving FD also provides the nomination facility to the investors.
  • The rate of Interest on a tax-saving FD may be higher than a normal FD.

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