Key benefits of a tax saving fixed deposit

A tax-saving fixed deposit is one of the best avenues for deductions under Section 80C. You can get a decent FD interest rate risk-free.

A fixed deposit account serves numerous purposes, such as offering risk-free capital gains, goal-oriented savings, and more. It is exciting to note that an FD can also help you with tax deductions under Section 80C. These types of FDs are known as tax-saving fixed deposits, and they usually have a tenure of 5 years.

Normal deposit accounts are liable for taxation.. However, a  5-year fixed deposit offers a tax-free deduction on investments of ₹1.5 lakhs currently. Let us go through the details of tax-saving fixed deposits and their features and benefits. 

What is a tax-saving fixed deposit?

A tax-saving fixed deposit is a specific type of deposit scheme that offers tax deductions under Section 80C of the Indian Income Tax Act, 1961. As an investor in the tax-saving FD, you can claim tax deductions on investments of up to 1.5 lakhs per year.

These deposit schemes are similar to any other fixed deposits because the funds are invested for a fixed period (here for 5 years). On maturity, the principal and accrued interests are directly paid into the bank account. You can open a tax saving account as an individual or jointly with a member of your family.

For effective tax savings and better returns, you can opt for an IDFC FIRST Bank fixed deposit that offers the industry’s best FD interest rates and the option of monthly or quarterly interest payouts. Senior citizens can enjoy an additional 0.5% interest rate along with zero penalties for early withdrawals.

Key benefits of a tax saving fixed deposit

You are liable for a fixed deposit tax if your earnings from the interest exceed ₹40,000 and ₹50,000 for senior citizens. The tenure for a tax saving deposit is fixed at 5 years with a maximum tax-deductible investment of ₹1.5 lakhs in a year. Some common benefits of a tax-saving fixed deposit are as follows.

• You get a tax rebate as seen under Section 80C of the Income Tax Act, 1961.

• Senior citizens get an additional interest of 0.5% to the prevailing interest rates, subject to variation from bank to bank

• Several tax-saving deposits allow joint accounts, but only the primary account holder receives the tax benefits.

• It is a risk-free investment instrument since it is not influenced by the fluctuating market.

• You can invest with a low minimum amount. At IDFC FIRST Bank it starts with as low as Rs. 1000. Do keep in mind that the minimum investment amount varies depending on the bank.

• You can enjoy decent capital gains along with saving taxes.

Before investing in a fixed deposit, you must note that the tax-saving fixed deposit does not allow premature withdrawal, and the lock-in period for investment is 5 years.

Who can invest in the tax-saving FD?

The following are the entities that can invest in a tax-saving scheme to avoid fixed deposit tax.

• An individual and Hindu Undivided Families can invest in a tax-saving fixed deposit scheme.

• You can invest in any public or private bank fixed deposit for tax savings. However, cooperative and rural banks are not included.

• Term deposit in a post office for a tenure of 5 years also qualifies as a tax saving deposit.

• You can also deposit funds as an individual or open an account jointly. But the tax benefits are allowed to the primary account holder.

A fixed deposit account can help you with better returns and save taxes. You can invest in a tax saving deposit to get rebates on income taxes for a maximum investment of ₹1.5 lakhs in a year. Thus, it offers an excellent means of avoiding tax deductions and helps in meeting your financial goals.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.