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Benefits of tax saving FD under 80C section of Income Tax Act

Summary: Fixed deposits that qualify for a tax deduction as per Section 80C of the Indian Income Tax Act, 1961, are called Tax Saver Fixed Deposits. Learn more.

11 Mar 2022 by Team FinFIRST

There are many investment instruments available today, but everyone has a preference. The choice depends on the amount of money they can invest, their investment horizon, goal, and other factors. Fixed deposit (FD) accounts have long been a popular way to invest as they are not subject to market fluctuations and offer a guaranteed return at maturity.

This has made FDs a favorite among risk-averse investors, who gravitate towards FDs despite the emergence of new investment instruments.  Read on to know how they can help you earn returns and save tax effectively.

What is a fixed deposit?

Banks provide fixed deposit accounts as an investment option. Investors can deposit the amount they want for a particular duration into this account. In exchange, they get a fixed interest rate throughout their investment tenure. The interest rate on FDs is substantially higher than the interest rate on a standard savings account.

It can be paid monthly or quarterly, while investors also have the option of reinvesting the amount in another FD.

If they pick the latter option, they can explore the interest offered by different banks on FDs. Most banks offer FDs, but the interest rate they provide may differ. A fixed deposit with IDFC FIRST Bank attracts competitive interest rates along with monthly or quarterly payout options.


What is a tax-saving FD?

Fixed deposits that qualify for a tax deduction as per Section 80C of the Indian Income Tax Act, 1961, are called Tax Saver Fixed Deposits. Single owner type deposits and joint holder type deposits are the two types of accounts to make these deposits. Remember, though, that the tax benefit is only accessible to the first holder if you choose a joint method of holding.

The tax saver fixed deposit has a 5-year maturity period. This tax deduction is available to everyone, including senior citizens and non-resident Indians. It is worth noting that the interest you receive on this fixed deposit is not tax-exempt, and you cannot borrow against it.

What are the benefits of a tax-saving FD?

Some benefits of a tax-saving FD are:

  • Tax deductions as seen under section 80C of the Income Tax Act, 1961.
  • Most banks provide senior citizens with a 0.50 per cent interest rate increase.
  • Many tax-saving FD plans allow you to open a joint account.
  • Only the primary account owner is eligible for tax advantages in the case of a joint account.
  • In the event of your death, the Tax Saver Fixed Deposit allows you to name a nominee who will be able to receive your funds before or after maturity.
  • The minimum amount that must be invested varies by bank.
  • Not only will you save money on taxes, but you also get guaranteed returns.

You can also benefit from using an FD calculator, which allows you to determine the best amount and term to get the best returns.

What are the features of a tax-saving FD?

The key features of a tax-saving FD are:

  • 5-year lock-in period
  • For the general population, interest rates range from 5.30 per cent to 6.00 per cent per year.
  • The deposit range is from ₹100 to ₹1.50 lakh in a financial year.

A fixed deposit is an excellent investment option if you want assured returns and less risk. However, you must research interest rates offered by different FDs. Doing so will help you get the best value for your investment, helping increase your wealth.

You can further track all your accounts with the IDFC FIRST Banking App.




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