Tax Saving FD

A Tax Saving Fixed Deposit (FD) is a financial instrument designed to provide individuals with a dual benefit of fixed returns and tax savings. Unlike regular fixed deposits, Tax Saving FDs come with a mandated lock-in period of 5 years, during which premature withdrawals are not allowed.

The primary advantage of investing in a Tax Saving FD is the deductions under Section 80C of the Income Tax Act. This allows investors to reduce their taxable income by the invested amount, up to a maximum limit of Rs 1.5 lakh. This not only encourages disciplined savings, but also serves as a strategic tool for tax planning.

Tax Saving FDs offer a dependable solution to save money and cut down on income tax and helps in simple and efficient financial management.

Highlights of Tax Saving FD

Tax Saving FDs are one of the most popular and safe long-term investment plans. Here are some key highlights of Tax-Saving FDs:

Tax Saving FD Interest Rates

Different public and private sector banks and small finance banks offer different interest rates for tax savings FD. Check out the FD rates of top financial institutions below.

Top 10 Banks offering Tax Saving Fixed Deposit in India

Several public and private sector banks facilitates tax saving Fixed Deposits at lucrative interest rates. Refer to the table below to know the current tax saving FD interest rates of the top 10 banks in India.

Top Small Finance Bank Tax Saving FD Rates

There are several small finance banks that offers tax saving FDs. Here are the top 10 small finance banks you may consider:

Key Features of a Tax Saving FD

Tax savings FDs have several unique features that help to optimise your investments. Know all about the significant features of tax saving FD below, including eligibility criteria, minimum and maximum deposit, tenure, premature closure, renewals, etc.

Tax Saving FD Eligibility

Tax Saving Fixed Deposits (FDs) are specifically designed for resident Indian citizens and Hindu Undivided Families (HUFs) seeking to save taxes and accumulate wealth over the long term. To be eligible to invest in a Tax Saving FD, you must meet the following criteria:

• Resident Indian Citizen: To invest in a Tax Saving FD, you must be a resident Indian citizen, having spent at least 182 days in India in a financial year.
• Hindu Undivided Family (HUF): An HUF, comprising a lineal ancestor, lineal descendants, including wives and unmarried daughters, is a separate entity for tax and can invest in Tax Saving FDs.
• Age Requirement: Individuals aged 18 and above are eligible for Tax Saving FDs. Minors can invest jointly with an adult.

Tax Saving FD Amount of Deposit

The minimum and maximum deposit amounts for a Tax-Saving Fixed Deposit (FD) varies depending on the bank you choose. The minimum deposit is ₹100, and the maximum deposit is capped at ₹1.5 lakh per financial year to qualify for tax deductions under Section 80C of the Income Tax Act.

Here's a quick breakdown of the deposit limits for Tax-Saving FDs:

Minimum Deposit: Most banks have a minimum deposit limit of ₹100. Although, some banks may have a higher minimum, such as ₹500 or ₹1000.

Maximum Deposit: ₹1.5 lakh per financial year per individual. This limit is inclusive of investments in other eligible tax-saving schemes under Section 80C.

It's always recommended to check with your chosen bank for their specific terms and conditions regarding minimum and maximum deposit amounts for Tax-Saving FDs.

Tenure of Deposit for a Tax Saving FD

The tenure, or duration, of a Tax-Saving Fixed Deposit (FD) is typically five years. This means that once you invest in a Tax-Saving FD, your money is locked in for a period of five years, and you cannot withdraw the principal amount during this time.

After the completion of the five-year lock-in period, you have the option to either withdraw the funds or renew the FD for another term, as per the terms and conditions of the bank or financial institution where you hold the FD.

Premature Closure of Tax Saving FD

The tax-saving FD comes with a mandatory five-year lock-in period, barring any premature withdrawals during this duration.

However, exceptions apply in the case of the investor's death, allowing legal heirs or nominees to access premature payments.

If there is no designated nominee, the bank disburses the funds to the legal heir following the investor's passing.

In some cases, you may withdraw money before completing the lock-in period, but you have to pay penalties and get a smaller sum than the expected maturity value.

Auto-Renewal of Tax Saving FD

As per Government notification, the option for auto-renewal is not applicable to the Tax-Saver FD schemes.

Tax Saving FD Vs other Tax Saving Investments

Although tax saving fixed deposits (FDs) are a popular investment option for individuals looking to save tax, there are several other tax saving investment options available, each with its own unique advantages and disadvantages.

Here is a comparison of tax saving FDs with some of the other popular tax saving investment options:

Points to Remember Before Investing in a Tax Saving FD

Before investing in a Tax Saving Fixed Deposit (FD), it's crucial to consider various factors to ensure the investment aligns with your financial goals and risk tolerance. Here are some key points to remember before investing in a Tax Saving FD:

• Lock-in Period: With Tax Saving FDs, your money is locked in for five years, meaning you can't withdraw it early. Make sure you won't need the money during this time.
• Interest Rates: Compare rates from different banks to get the best return. Pick a bank with competitive rates, stability, and an excellent track record.
• Investment Eligibility: Tax Saving FDs are for individuals and Hindu Undivided Families (HUFs). Check if you qualify before investing.
• Original Documents: Produce original documents along with the photocopies for verification.
• Minimum and Maximum Investment: The minimum is usually Rs. 100, and the maximum is Rs. 1.5 lakh per year under Section 80C of the Income Tax Act, 1961.
• Tax Benefits: Know the tax perks. You can claim up to Rs. 1.5 lakh per year as a deduction, reducing your taxable income and tax bill.
• Premature Withdrawals: Avoid taking out money early – it's discouraged and might come with penalties. Keeping the funds locked in will maximise tax benefits.
• Suitability to Your Needs: Check if Tax Saving FDs match your financial goals and risk tolerance. Consider your investment horizon and strategy.
• Investment Goals: Clearly define why you're investing – be it for retirement, education, or specific goals. Ensure Tax Saving FDs align with your long-term plan.
• Diversification: Balance risk by diversifying your investments. Consider different asset classes alongside Tax Saving FDs.
• Seek Professional Advice: If in doubt, consult a financial advisor. They can tailor advice based on your situation, goals, and risk tolerance, helping you choose the right investments, including Tax Saving FDs.

Benefits of Tax Saving FD

Tax Saving Fixed Deposits (FDs) offer a plethora of benefits to investors, making them a popular choice for tax-saving and wealth accumulation. Here are some of the key advantages of investing in Tax Saving FDs:

• Tax Deduction: One of the primary advantages is the eligibility for tax deductions under Section 80C of the Income Tax Act. Investors can claim deductions on the invested amount, up to a maximum limit of Rs 1.5 lakh, leading to a reduction in taxable income.
• Stable Returns: Tax Saving FDs provide fixed interest rates, offering a predictable and stable return on investment. This can be appealing be to risk-averse investors seeking assured returns.
• Capital Protection: The invested amount in Tax Saving FDs is ‌ considered safe as it is protected, providing a secure investment avenue.
• Financial Discipline: The mandatory lock-in period of 5 years encourages disciplined savings, preventing premature withdrawals and promoting a long-term financial approach.
• Ease of Investment: Investing in Tax Saving FDs is a straightforward process, making it accessible for individuals looking for a hassle-free way to save on taxes while earning returns.
• No Market Risk: Unlike some other investment options, Tax Saving FDs are not subject to market fluctuations, making them suitable for those who prefer a more conservative approach to investing.
• Variety of Interest Payment Options: Investors can choose between cumulative and non-cumulative interest payment options based on their preference for receiving periodic interest income or accumulating it for compounding.
• Wide Availability: Tax Saving FDs are offered by various banks and financial institutions, providing investors with a range of choices and flexibility in selecting the one that suits their needs.

Tax Deductible on Fixed Deposits

In India, Under Section 80C of the Income Tax Act, individuals can deduct up to ₹1.5 lakh per financial year from their taxable income for investments in certain specified instruments, including tax saving FDs.

To claim tax deductions on fixed deposits, you must meet the following eligibility criteria:

• You must be Hindu United Families (HUF) or an individual to invest in tax saving fixed deposit schemes.
• You must have invested in a fixed deposit with a bank or financial institution that is recognized by the Income Tax Department.
• The fixed deposit must have a lock-in period of at least 5 years (for Section 80C deductions) or 1 year (for Section 80TTA deductions).

How to Avoid TDS on FD

There are a few ways to avoid TDS on FD (fixed deposit) interest in India. These include:

• Form 15G or 15H: Submit Form 15G or 15H to your bank if your total income is below the taxable limit. This informs them you are not liable to pay taxes on FD interest, and they won't deduct TDS. Form 15G is for individuals or HUFs without taxable income, while Form 15H is for senior citizens with no taxable income.
• File your income tax return on time: If you have already paid TDS on your FD interest, you can claim a refund by filing your income tax return on time. Once your return is processed, the income tax department will refund the excess TDS deducted.