Tax saving fixed deposits: Know their benefits

NEW DELHI: Still have to make tax saving investments? Looking for a safe and easy option? Tax saving fixed deposit is amongst the best.

Tax saving fixed deposit is an option in which an individual can invest to save tax under section 80C of the Income Tax Act. You can easily invest in such FDs by visiting a bank, filling out the application and submitting a cheque for the amount that you would like to invest.

Though,

tax saving FD

is a debt investment but is a safe investment option as compared to equity-based tax saving option i.e. ELSS schemes. In addition to this, tax saving FDs provide you with guaranteed returns.

Among several options of debt investments that offer tax benefit under section 80C of the Income Tax Act, it is the tax saving fixed deposits that have a lock-in period of 5 years and their interest is paid either monthly or quarterly. Tax saving fixed deposits are more safe and easy investment options as compared to other debt investment options.

Before making investment in tax saving FDs, one needs to go through the points mentioned below:

• Individuals and HUFs (Hindu Undivided Families) are eligible to make investment tax saving fixed deposit scheme. Also, a minor can invest jointly with an adult.
• The minimum amount of investment in these FDs varies from bank to bank. Moreover, the maximum investment amount is Rs 1.5 lakh.
• The tenure of these deposits is of 5 years. The investor is not allowed to make withdrawals before its maturity and cannot take loan against these FDs.
• One can choose any private or public sector banks to make investment in these tax saving fixed deposits.
• Under Section 80(C) of the Income Tax Act, investment in Post Office Time Deposit that has a tenure of 5 years is eligible for deduction.
• Post office fixed deposit can be transferred from one post office to another. These FDs can either be held in single mode or in joint mode. In joint mode, the tax benefit is provided to the first holder.
• The interest earned on these FDs is taxable and therefore, TDS is applicable.
• These tax saving fixed deposits have the nomination facility.
• In banks, the interest rate offered to senior citizens is slightly higher in comparison to the interest rate offered to non-senior citizens.

Here are some of the most common questions asked about tax saving fixed deposits:

1. What is a tax saving FD?It is a type of fixed deposit in which you can get a tax deduction under section 80(C) of the Income Tax Act.
2. Is post office FD safe investment option?Post office term deposits are totally risk-free as they are backed by the government.
3. Is fixed deposit interest paid monthly?Interest on a fixed deposit is paid either monthly or quarterly.
4. Can I break a tax saver FD?No, the lock-in period of such FDs is of 5 years.

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